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A  COMPREHENSIVE  SERIES  OF  NEW 
AND    SPECIALLY    WRITTEN    BOOKS 


EDITORS: 
Prof.  GILBERT  MURRAY,  D.Litt,  LL.D.,  F.B.A. 
The  Rt.  H»n.   HERBERT   FISHER,  LL.D.,  F.B.A. 
Prof.   J.   ARTHUR  THOMSON,   M.A.,    LL.D. 
Prof.  WILLIAM  T.    BREWSTER,   M.A. 


256  pages.      =  =  =  =      In  cloth  binding. 


HISTORY  AND   QEOORAPMY 

3.  THE  FRENCH   REVOLUTION.     By   Hilaire   Belloc,  M.A.    (With 

Maps.) 

4.  A  SHORT  HISTORY  OF  WAR  AND  PEACE.    By  G.  H.  Ferris. 

8.  POLAR  EXPLORATION.     By  DrW.  S.  Bruck,  F.R.S.E.,  Leader  of  the 
Scotia  Expedition.     (With  Maps.) 

12.  THE  OPENING-UP  OF  AFRICA.    By  Sir  H.  H.  Johnston,  G.C.M.G., 

F.Z.S.    (With  Maps.) 

13.  MEDIiEVAL  EUROPE.     By  H.  W.  C.  Davis,  M.A.    (With  Maps.) 

14.  THE    PAPACY    AND    MODERN   TIMES  (1303-1870).     By  William 

Barry,  D.D. 
23.  HISTORY  OF  OUR  TIME  (1886-1913).     By  G.  P.  Gooch,  M.A. 

25.  THE  CIVILISATION  OF  CHINA.    By  H.  A.  Giles,  LL.D.,  Professor 

of  Chinese  at  Cambridge. 
29.  THE  DAWN  OF  HISTORY.     By  J.  L.  Myres,  M.A.,  F.S.A. 

33.  THE  HISTORY  OF  ENGLAND.    By  Prof.  A.  F.  Pollard,  M.A.   (With 

a  Chronological  Table.) 

34.  CANADA.     By  A.  G.  Bradley. 

37.  PEOPLES  AND  PROBLEMS  OF  INDIA.    By  Sir  T.  W.  Holdernkss, 

K.C.S.L 
42.  ROME.     By  W.  Warde  Fowler,  M.A. 
48.  THE  AMERICAN  CIVIL  WAR.    By  F.  L.  Paxson. 
51.  WARFARE  IN  BRITAIN.     By  Hilaire  Belloc,  M.A. 
r.&.  MASTER  MARINERS.     By  J.  R.  Spears. 


61.  NAPOLEON.     By  the  Rt.  Hon.  Hf.rbekt  Fisurr,  I.L  D.,  F.B.A. 
66.  THE   NAVY   AND  SEA    POWER.     By  David  Hannay. 
71.  GERMANY  OF  TO-DAY.     By  Charles  Tower. 
82.  PREHISTORIC   BRITAIN.     By  Robert  Munro,  M.A.,  M.D.,  LL.D., 
F.R.S.E.     (Illustrated.) 

91.  THE   ALPS.     By  Arnold  Lunn.  (Illustrated.) 

92.  CENTRAL  AND   SOUTH   AMERICA.     By  Prof.  W    R.  Shepherd. 

(Maps.) 

97.  THE  ANCIENT   EAST.     By  D.  G.  Hogarth,  M.A.    (Maps.) 

98.  WARS    BETWEEN    ENGLAND   AND   AMERICA.     By  Prof.  T.  C. 

Smith,  M.A. 

100.  HISTORY   OF  SCOTLAND.     By  Prof.  R.  S.  Rait. 

101.  BELGIUM.     By  R.  C.  K.  Ensor.     (Maps.) 

105.  POLAND.     By  Prof.  W.  Alison  Phillips.    (With  Maps.) 

107.  SERBIA.     By  L.  F.  Waring. 

108.  OUR  FORERUNNERS.     A  Study  of  Palseolithic  Man's  Civilisations  in 

Western  Europe  and  the   Mediterranean    Basin.      By  M.  C.  Burkitt, 
M.A.,  F.S.A.     (Illustrated.) 


LITERATURE   AND   ART 

2.  SHAKESPEARE.     By  John  Masefield. 
27.  ENGLISH   LITERATURE:    MODERN.     By  G.  H.  Mair,  M.A. 
35.  LANDMARKS  IN  FRENCH   LITERATURE.     By  G.  L.  Strachey. 
39.  ARCHITECTURE.     By  Prof  W.  R.  Lethaby.     (Illustrated.) 
43.  ENGLISH  LITERATURE  :  MEDIAEVAL.     By  Prof  W.  P.  Ker,  M.A. 
46.  THE  ENGLISH  LANGUAGE.     By  L.  Pearsall  Smith,  M.A. 
52.  GREAT  WRITERS   OF   AMERICA.     By  Prof  J.  Erskine  and  Prof. 

W.  P.  Trent. 
63:  PAINTERS  AND  PAINTING.     By  Sir  Frederick  Wedmore.    (With 

16  half-tone  Illustrations.)     From  the  Primitives  to  the  Impressioni.sts. 
64.  DR  JOHNSON  AND  HIS  CIRCLE.     By  John  Bailey,  M.A. 
66.  THE    LITERATURE  OF  GERMANY.     By  Prof.  J    G.  Robertson, 

M.A.,  Ph.D. 
70.  THE  VICTORIAN  AGE  IN  LITERATURE.     ByG.  K.Chesterton. 
73.  THE  WRITING  OF  ENGLISH.     By  W.T.  Brewster,  A.M.,  Professor 

of  English  in  Columbia  University. 

75.  ANCIENT  ART  AND  RITUAL.   By  J.\ne  E  Harrison,  LL.D.,  D.Litt.' 

76.  EURIPIDES  AND   HIS  AGE.     By  Gilbert  Murray,  D.Litt.,  LL.D., 

F.B.A. 
87.  CHAUCER  AND  HIS  TIMES.     By  Grace  E.  Hadow. 
89.  WILLIAM    MORRIS:     HIS    WORK    AND    INFLUENCE.     By  A. 

Glutton  Brock. 
93.  THE  RENAISSANCE.     By  Edith  Sichel. 
96.  ELIZABETHAN  LITERATURE.     By  J   M.  Robertson,  M.P. 
99.  AN   OUTLINE   OF   RUSSIAN   LITERATURE.     By  Hon.  Maurics 

Baring. 
103.   MILTON.     By  John  Bailey,  M.A. 


SCIENCE 

7.  MODERN  GEOGRAPHY.     By  Marion  I.  Nkwbigin,  D.Sc. 
9.  THE  EVOLUTION  OF  PLANTS.     By  Dr  D.  H.  Scott,  M.A.,  F.R.S. 
(Illustrated.) 

17.  HEALTH  AND  DISEASE.     By  W.  Lkslib  Mackenzie,  M.D. 

18.  INTRODUCTION    TO    MATHEMATICS.      By  A.  N.  Whitehead, 

Sc.D.,  F.R.S.     (With  Diagrams.) 

19.  THE  ANIMAL  WORLD.     By  Prof.  F.  W.  Gamble,  F.R.S.    With  Intro- 

duction by  Sir  Oliver  Lodge.     (Many  Illustrations.) 

20.  EVOLUTION.     By  Prof.  J.  Arthur  Thomson,  M.A.,  and  Prof.  Patrick 

Geddes. 

22.  CRIME  AND   INSANITY.     By  Dr  C.  A.  Mercier. 

23.  PSYCHICAL   RESEARCH.     By  Sir  W.  F.  Barrett,  F.R.S. 

31.  ASTRONOMY.       By  A.   R.   Hinks,  M.A.,  Chief  Assistant,  Cambridge 

Observatory. 

32.  INTRODUCTION  TO  SCIENCE.    By  J.  Arthur  Thomson,  M.a. 
36.  CLIMATE   AND  WEATHER.      By  Prof.  H.  N.  Dickson,  D.Sc.Oxon, 

M.A.,  F.R.S.E.    (With  Diagrams.) 
41.  ANTHROPOLOGY.     By  R.  R.  Marett,  M.A. 
44.  THE  PRINCIPLES  OF  PHYSIOLOGY.    By  Prof.  J.  G.  McKendrick, 

M.D. 

46.  MATTER  AND   ENERGY.     By  F.  Soddv,  M.A.,  F.R.S. 

49.  PSYCHOLOGY,    THE    STUDY    OF    BEHAVIOUR.       By  Prof.    W. 

McDouGALL,  F.R.S.,  M.B. 
63.  THE   MAKING  OF  THE   EARTH.     By  Prof.  J.  W.  Gregory,  F.R.S. 
(With  38  Maps  and  Figures.) 

57.  THE  HUMAN  BODY.  By  Prof.Sir  A.  Keith,  M.D.,LL.D.  (Illustrated.) 

58.  ELECTRICITY.     By  Gisbert  Kapp,  D.Eng.     (Illustrated.) 

62.  THE  ORIGIN  AND  NATURE  OF  LIFE.  By  Dr  Benjamin  Moore, 
Professor  of  Bio-Chemistry,  University  College,  Liverpool. 

67.  CHEMISTRY.  By  Raphael  Mei.dola,  F.R.S.  Presents  clearly  the  way 
in  which  chemical  science  has  developed,  and  the  stage  it  has  reached. 

72.  PLANT  LIFE.     By  Prof.  J.  B.  Farmer,  D.Sc,  F.R.S.    (Illustrated.) 

78.  THE  OCEAN.      A  General  Account  of  the  Science  of  the  Sea.     By  Sir 

John  Murray,  K.C.B.,  F.R.S.     (Colour  Plates  and  other  Illustrations.) 

79.  NERVES.     By  Prof.  D.  Fraser  Harris,  M.D.,  D.Sc.     (Illustrated.)    A 

description,  in  non-technical  language,  of  the  nervous  system,  its  intricate 
mechanism,  and  the  strange  phenomena  of  energy  and  fatigue,  with  some 
practical  reflections. 

86.  SEX.  By  Prof.  Patrick  Geddes  and  Prof.  J.  Arthur  Thomson,  LL.D. 

88.  THE  GROWTH   OF  EUROPE.      By  Prof.  Grenville  Coi.e.    (Illus- 
trated.) 
109.  COMMERCIAL  GEOGRAPHY.     By  Marion  I.  Newbigin,  D.Sc. 

PHILOSOPHY  AND   RELIGION 

15.  MOHAMMEDANISM.      By  Prof.  D.  S.  Margoliouth,  M.A.,  D.Litt. 
40.  THE   PROBLEMS   OF    PHILOSOPHY.      By  the    Hon.   Bertrand 
Russell,  F.R.S. 

47.  BUDDHISM.     By  Mrs  Rhys  Davids,  M.A. 

50.  NONCONFORMITY:  ITS  ORIGIN  AND  PROGRESS.     By  Principal 

W.  B.  Selbie,  M.A. 


54.  ETHICS.     By  G.  E.  Moore,  M.A. 

50.  THE   MAKING   OF    THE  NEW  TESTAMENT.     By   Prof  B.  W. 

Bacon,  LL.D.,  D.D. 
60.  MISSIONS:    THEIR   RISE     AND     DEVELOPMENT.        By    Mrs 

Creighton. 

68.  COMPARATIVE  RELIGION.    By  Prof.  J.  Estun  Carpenter,  D.Litt. 
74.  A  HISTORY   OF    FREEDOM   OF    THOUGHT.      By  J.    B.    Bury, 

Litt.D.,  LL.D. 

84.  LITERATURE  OF   THE   OLD  TESTAMENT.      By  Prof.  George 

Moore,  D.D.,  LL.D. 
90.  THE  CHURCH   OF   ENGLAND.     By  Canon  E.  W.  Watson. 
94.  RELIGIOUS  DEVELOPMENT  BETWEEN  THE  OLD  AND  NEW 

TESTAMENTS.     By  Canon  R.  H.  Charles,  D.D.,  D.Litt. 
102.  HISTORY  OF  PHILOSOPHY.    By  Clement  C.  J.  Webb. 

SOCIAL  SCIENCE 

1.  PARLIAMENT.     Its    History,    Constitution,    and    Practice.     By    Sir 

CouRTENAY  P.  Ilbert,  G.C.B.,  K.C.S.I. 
6.  THE  STOCK  EXCHANGE.    By  F.  W.  Hirst,  Editorof  T/ie  Economist. 
6.  IRISH   NATIONALITY.     By  Mrs  J.  R.  Green. 

10.  THE  SOCIALIST  MOVEMENT.    By  J.  Ramsay  MacDonald,  M.P. 

11.  CONSERVATISM.     By  Lord  Hugh  Cecil,  M.A.,  M.P. 
16.  THE   SCIENCE  OF   WEALTH.     By  J.  A.  Hobson,  M.A. 
21.  LIBERALISM.     By  L.  T.  Hobhouse,  M.A. 

24.  THE   EVOLUTION   OF   INDUSTRY.     By  D.  H.  Macgregor,  M.A. 
26.  AGRICULTURE.     By  Prof.  W.  Somerville,  F.L.S. 
30.  ELEMENTS  OF  ENGLISH  LAW.   By  W.  M.  Geldart,  M.A.,  B.C.L. 
38.  THE    SCHOOL:     AN    INTRODUCTION    TO    THE    STUDY    OF 

EDUCATION.     By  J.  J    Findlay,  M.A.,  Ph.D. 
59.  ELEMENTS  OF  POLITICAL  ECONOMY.      By  Sir  S.  J.  Chapman, 

K.C.B. 

69.  THE    NEWSPAPER.      By  G.  Binney  Dibblee,  M.A.      (Illustrated.) 

The  best  account  extant  of  the  organisation  of  the  newspaper  press,  at 
home  and  abroad. 
77.  SHELLEY,  GODWIN,  AND  THEIR  CIRCLE.   By  H.  N.  Brailsforu, 
M.A. 

80.  CO-PARTNERSHIP     AND      PROFIT-SHARING.       By    Aneurin 

Williams,  M.A. 

81.  PROBLEMS   OF  VILLAGE   LIFE.     By  E.  N.  Bennett,  M.A. 
83.  COMMON-SENSE   IN   LAW.     By  Prof.  P.  Vinogradoff,  D.C.L. 

85.  UNEMPLOYMENT.     By  Prof.  A.  C.  Pigou,  M.A. 

96.  POLITICAL    THOUGHT    IN    ENGLAND:    FROM    BACON    TO 

HALIFAX.     By  G.  P.  Gooch,  M.A. 
104.  POLITICAL  THOUGHT   IN   ENGLAND :    FROM  SPENCER  TO 

THE   PRESENT   DAY.     By  Ernest  Barker,  M.A. 
106.  POLITICAL  THOUGHT   IN  ENGLAND:   THE  UTILITARIANS 

FROM     BENTHAM     TO    J.     S.     MILL.       By   W.    L.    Davidson, 

M.A.,  LL.D. 


Many  other  future  volumes  in  preparation. 
LONDON:   WILLIAMS   AND   NORGATE 

Ami  of  all  Bookshops  a>ui  Bookstalls. 


HOME   UNIVERSITY   LIBRARY 
OF  MODERN    KNOWLEDGE 


UNEMPLOYMENT 

By  a.  C.  PIGOU,  M.A. 


London 
WILLIAMS   &   NORGATE 


HENRY  HOLT  &  Co.,  New  York 
Canada:  RYERSON  PRESS,  Toronto 
India  :  Burns,  Gates  8c  Washbourne,  Ltd. 


HOME 

UNIVERSITY 

LIBRARY 

OF 

MODERN  KNOWLEDGE 

Editors  ! 

HERBERT  FISHER,  M.A.,  F.B.A.,  LL.D. 

Prof.    GILBERT    MURRAY,    D.LlTT., 
LL.D.,  F.B.A. 

Prof.  J.  ARTHUR   THOMSON,  M.A., 
LL.D. 

Prof.  WILLIAM  T.  BREWSTER,  M.A. 
(Columbia  University,  U.S.A.) 


NEW   YORK 

HENRY    HOLT   AND   COMPANY 


Ex  Libris 
C.  K.  OGDEN 


UNEMPLOYMENT 


A.  C.  PIGOU,  M.A. 

PROFESSOR  OF  POLITICAL  ECONOMY  IN  THE 

UNIVKKSITY    OF    CAMBRIDGE 
AUTHOR      OF       "the        PRINCIPLES        AND 
MKTHODS         OF         INDUSTRIAL  PEACE," 

"  PREFEKENTIAI.  AND  PKOTECTIVE  IMPORT 
DUTIES,"       "wealth       AND      WELFARE," 
ETC 


LONDON 

WILLIAMS  AND   NORGATE 


First  printed    .     .     .  December  19^  5 
Reprinted     .    .    .      February  1924 


PRINTED   IN  GREAT   BRITAIN 


UNIVEP55TTV  ', 
// ,  SANTA  BAKBAiiA 


/ 


PREFACE 

I  AM  indebted  to  Messrs.  Macmillan  for  per- 
mission to  make  use  in  this  volume  of  a  few 
passages  from  my  books  Wealth  and  Welfare 
and  The  Principles  and  Methods  of  Industrial 
Peace  published  by  them.  These  passages 
appear  within  inverted  commas,  and  page 
references  to  their  position  in  the  books  from 
which  they  are  taken  are  given  in  the  notes. 
I  have  also  to  thank  Mr.  Terence  Hickman  for 
valuable  help  in  the  revision  of  the  manuscript 
and  for  making  the  index;  and  Mr.  Philip 
Baker  for  extensive  criticisms  and  suggestions, 
by  the  adoption  of  which  the  book  has,  I  think, 
been  very  much  improved. 

A.  C.  PiGou. 

King's  College,  Cambridge, 
November  1013. 


Tilt  follovnng  vchimes  of  kindred  iiiterest  have  already 
been  published  in  this  Library  : 

24.     The  Evolution  of  Industry.     Prof  D.  H.  MacGregor. 

16.     The  Science  of  Wealth.     John  A.  Hobson,  M.A. 

59.     Political  Economy.     Prof.  J.  S.  Chapman. 

80.     Co-partnership  and  Profit-sharing.     Aneuiin  Williams, 
M.A. 

10.  The  Socialist  Movement.     J.  R.  MacDonald,  M.P. 

11.  Conservatism.     Lord  Hugh  Cecil,  M.P. 
21.     Liberalism.     Prof.  L.  T.  Hobhouse. 


CONTENTS 


CBAP.  P40K 

I      INTRODUCTION  .....  9 

II       THE    MEANING    AND    MEASUREMENT    OF    UN- 
EMPLOYMENT       .  .  .  .  .12 

III       THE    EVIL    EFFECTS    OP    UNEMPLOYMENT        .  29 

IV       SOME     POPULAR     EXPLANATIONS    OF    UNEM- 
PLOYMENT .....  35 

V  UNEMPLOYMENT    IN    A    STATIONARY  STATE  .          51 

VI  THE    PLASTICITY    OF    WAGE-RATES  .             .          75 

VII  THE    CAUSES    OF    FLUCTUATIONS  .             .          93 

VIII  CYCLICAL    MOVEMENTS         .             .  .             .112 

IX  INDUSTRIAL    DISPUTES         .             .  .             .128 

X  THE    MOBILITY    OF    LABOUR          .  .             .       146 

XI       DIRECT     STATE     ACTION     TO    LESSEN    UNEM- 
'  PLOYMENT     ...  .  .        170 

III       THE    DISTRIBUTION    OP    UNEMPLOYMENT        .       190 
vii 


Vlll 

(JUJN Tii;i\  lb 

CHAP. 

PAOB 

XIII 

INSURANCE    AGAINST    UNEMPLOYMENT 

.     203 

XIV 

THE    RELIEF    OF    THE    UNEMPLOYED    . 

.     228 

XV 

CONCLUSION 

.     241 

NOTES       

.     248 

BIBLIOGRAPHY              .            .             >            . 

.     253 

INDEX        ... 

.     255 

UNEMPLOYMENT 

CHAPTER   I 

INTRODUCTION 

It  is  thought  by  many  that  the  attitude  of 
economists  in  the  face  of  obvious  social 
evils  is  unduly  contemplative ;  that  conditions, 
which  involve  the  misery  of  untold  thousands 
and  the  withering  of  incalculable  human 
promise,  are  for  them  no  more  than  the  theme 
for  ingenious  disquisitions,  and  the  excuse  for 
a  number  of  scarcely  comprehensible  formulae. 
Assuredly  this  is  a  mistaken  view.  The  com- 
pelling motive  that  leads  men  to  economic 
study  is  seldom  a  mere  academic  or  scientific 
interest  in  the  movements  of  the  great  wheel 
of  wealth.  It  is  rather  the  sense  that,  in  the 
world  of  business  and  of  labour,  justice  stands 
with  biassed  scales;  that  men,  women  and 
children  stagger  often  into  an  abyss  that  might 
be  fenced  and  guarded ;  that  the  lives  of  many 
are  darker  than  they  need  be ;  that  the  wealth, 
on  which  western  nations  pride  themselves, 
A  2  ^ 


10  UNEMPLOYMENT 

bears  but  a  faded  flower  of  welfare.  In  these 
things  lies  the  impulse  to  economic  investiga- 
tion ;  and  the  removal,  or  at  least  the  mitiga- 
tion, of  the  evils  they  portray  is  the  goal  of  the 
economist's  search.  In  the  ideal  of  which  he 
dreams,  and,  be  it  hoped,  in  the  ardour  and 
constancy  of  his  vision  of  it,  there  is  nothing 
that  need  divide  him  from  the  fiercest  orator 
of  the  market-place. 

What  distinguishes  economists  from  the  less 
patient  among  practical  philanthropists  is  not 
the  spirit,  but  the  method,  of  their  work.  They 
hold — and  this  belief  is  the  result  of  the  best 
thought  of  many  minds — that  the  various 
aspects  of  the  economic  life  of  any  modern 
country  are  bound  together  in  an  intimate 
unity.  The  consequence  is  that  attempts  to 
deal  with  any  particular  evil,  as  it  appears  at 
one  point,  may  often  be  followed  by  important 
and  not  at  all  obvious  effects,  breaking  out 
elsewhere  and  capable  of  more  than  neutraliz- 
ing whatever  immediate  good  may  have  been 
done.  The  only  way  in  which  it  is  possible 
to  contrive  measures  of  social  improvement 
that  shall  be  free  from  this  great  danger  is  to 
found  them  upon  a  close  and  thorough  study 
of  economic  life  as  a  whole.  If  the  "  art  "  of 
social  reform  is  to  be  effective,  the  basis  of  it 
must  be  laid  in  a  "  science."  The  contribu- 
tion   towards    the    work    of    practice    that 


INTRODUCTION  11 

economists  aspire  to  make  is  to  provide  for  it 
this  foundation.  Their  effort,  though  it  may 
well  be  roused  to  action  by  the  emotions,  itself 
necessarily  lies  within  the  sphere  of  the  in- 
tellect. Resentment  at  the  evils  investigated 
must  be  controlled,  lest  it  militate  against 
scientific  exactitude  in  our  study  of  their 
causes.  Pity  however  sincere  and  grief  how- 
ever real  are  here  intruders  to  be  driven 
ruthlessly  away.  Stirred  by  their  appeal  we 
have  entered  the  temple  of  science.  Against 
them  its  doors  are  closed,  and  they  must  wait 
without  for  our  return. 

This  volume  is  the  work  of  an  economist, 
and  aspires,  therefore,  after  the  cold  clarity  of 
science.  The  tone  of  it  is  explained  by  this 
consideration.  The  form  which  has  been 
adopted  is  determined  by  another  circum- 
stance. The  book  is  addressed  to  a  public 
consisting,  for  the  most  part,  of  persons  who 
are  in  no  way  familiar  with  economic  analysis. 
In  vie  v  of  this  fact,  an  earnest  endeavour  has 
been  made  to  avoid  the  use  of  technical  terms, 
and  to  conduct  the  discussion  in  such  language 
and  in  such  a  manner  as  to  be  intelligible  to 
the  ordinary  citizen.  But  the  problem  of 
Unemployment  is  of  so  complex  a  nature  that 
portions  of  the  argument  must  inevitably 
appear  difficult  to  persons  unaccustomed  to 
close  reasoning  on  these  matters.     Further- 


12  UNEMPLOYIVIENT 

more — so  far-reaching  are  the  interconnections 
between  different  aspects  of  economic  Hfe — 
portions  of  it  will  probably  seem,  at  first  sight, 
remote  from  the  main  theme  of  the  volume. 
These  obstacles  to  understanding  may  readily 
be  overcome  by  the  careful  reader.  It  is 
beyond  the  power  of  the  author  wholly  to 
remove  them  from  his  path.  For,  though 
such  a  book  as  this  is  made  better  by  an 
avoidance  of  the  language  of  economic  science, 
its  value  would  be  wholly  destroyed  if  the 
method  of  science  were  abandoned.  That 
method  I  am  resolved  to  follow  unswervingly 
throughout.  The  next  chapter,  therefore, 
will  be  devoted  to  a  preliminary  discussion  of 
definition  and  measurement — a  discussion 
which  is  necessarily  somewhat  tedious,  but 
which,  in  view  of  the  statistical  ineptitude  of 
much  current  writing,  cannot  safely  be 
omitted. 


CHAPTER   II 

THE  MEANING  AND  MEASUREMENT  OF 
UNEMPLOYMENT 

Unemployment  is  one  of  those  many  terms 
in  common  use,  the  general  significance  of 
which  is  understood  by  all,  but  which  it  is, 


MEANING  AND  MEASUREMENT    13 

nevertheless,  somewhat  difficult  to  define  with 
accuracy.  Are  we,  for  example,  to  include 
among  the  unemployed  those  who  are  idle 
because  they  do  not  want  to  work  ?  Are  we  to 
include  sick  persons,  or  workmen  out  on  strike, 
or  the  various  classes  of  individuals  who  are, 
for  one  reason  or  another,  "  unemployable  "  ? 
Any  decision  upon  these  points  is  necessarilj' 
more  or  less  arbitrary.  There  is  no  matter  of 
principle  involved  :  it  is  simply  a  question  of 
the  precise  sense  in  which  it  is  most  convenient 
to  use  a  particular  common  word.  Hence, 
there  are  two  conditions,  and  two  only,  that 
our  definition  must  obey.  It  must  be  so 
fashioned  as  to  prove  a  useful  tool  in  the 
investigation  we  have  in  hand;  and  it  must, 
subject  to  that  condition,  conform  as  closely 
as  possible  to  the  general  drift  of  popular  usage. 
The  search  for  a  definition,  upon  which  we 
now  enter,  must  be  guided  and  controlled  by 
these  two  tests. 

At  the  outset,  it  may  be  laid  down  that  the 
term  Unemployment  should  be  used  exclu- 
sively in  relation  to  the  sphere  of  work  for 
wages.  It  is  both  contrary  to  usage  and 
inconvenient  for  the  purpose  of  our  present 
problem  to  include  among  the  "  unemployed  " 
those  members  of  the  professional,  employer, 
or  salaried  classes,  who  are,  either  from 
choice  or  from  necessity,  from  time  to  time 


14  UNEMPLOYMENT 

unoccupied.  Hence,  unemployment  means  un- 
employment among  the  wage-earning  classes. 
Furthermore,  it  means  unemployment  among 
those  classes  in  respect  of  wage-work.  If  a 
wage-earner  happens  to  possess  an  allotment 
on  which  he  can  work  when  discharged  from 
his  ordinary  trade,  or  if  he  is  able,  on  these 
occasions,  to  turn  his  hand  to  wood-carving 
or  some  other  domestic  industry,  we  shall  not, 
for  that  reason,  decline  to  class  him  among  the 
unemployed.  Of  course,  the  ejects  of  un- 
employment in  the  case  of  such  a  man  are 
very  different  from  its  effects  on  one  who  has 
no  alternative  non-wage-yielding  occupation; 
and  this  distinction  is  not  without  practical 
importance.  But  convenience  and  usage  alike 
decree  that  a  wage-earner,  unemployed  at 
wage-work,  shall  be  classed,  whatever  he  is, 
in  fact,  doing,  among  the  unemployed.  The 
only  persons  then  of  whom  unemployment 
may  be  predicated  are  wage-earners,  and  of 
these  unemployment  must  be  predicated  when 
they  are  unemployed  in  respect  of  wage-work. 
Even,  however,  v/hen  this  is  understood, 
it  does  not  become  possible  to  pass  directly  to 
a  definition  of  unemployment.  For  unem- 
ployment clearly  does  not  include  all  the 
idleness  of  wage-earners,  but  only  that  part 
of  it  which  is,  from  their  point  of  view  and  in 
their  existing  condition  at  the  time,  involuntary. 


MEANING  AND  MEASUREMENT    15 

There  is,  therefore,  excluded  the  idleness  of 
those  who  are  definitely  incapacitated  from 
wage-earning  work  by  extreme  old  age,  in- 
firmity or  temporary  sickness.  There  is  also 
excluded  the  idleness  of  those  who  are  idle, 
not  from  necessity,  but  from  choice.  The  fact 
that  workpeople  work  eight  or  ten  or  twelve 
hours  a  day,  instead  of  twenty-four,  does  not 
constitute  the  remaining  hours  of  the  day  a 
period  of  unemployment.  Yet  again,  there  is 
excluded  the  idleness  of  the  great  mass  of 
the  vagrant  class,  whose  ambition  is,  in 
large  part,  just  to  avoid  work.  And,  finally, 
there  is  excluded  the  "  playing "  of  those 
workpeople  who  are  idle  on  account  of  a 
strike  or  a  lock-out.  Though,  however,  at 
first  sight,  the  line  of  demarcation  between 
unemployment  and  those  forms  of  idleness, 
which  are  not  involuntary,  and  which  do  not, 
therefore,  fall  under  the  name,  seems  fairly 
clear,  reflection  soon  reveals  a  serious  defect 
in  the  rough  presentation  of  it  that  has  just 
been  attempted.  For,  whether  a  man  wishes 
to  work  or  to  be  idle,  and,  if  he  wishes  to  work, 
whether  he  wishes  to  work  much  or  little,  are 
not  questions  to  which  absolute  answers  can 
be  given.  Rather,  the  answers  must  depend 
on  the  rate  of  wage  that  is  to  be  obtained  as 
a  reward  of  working.  Hence,  it  appears 
that  some  greater  precision  of   definition  is 


16  UNEMPLOYMENT 

required.  The  amount  of  unemployment,  let 
us  therefore  say,  which  exists  in  any  industry, 
is  measured  by  the  number  of  hours'  work — 
assuming,  of  course,  a  given  efficiency  for  each 
hour's  work — by  which  the  employment  of 
the  persons  "  attached  to  "  or  "  occupied  in  " 
that  industry  falls  short  of  the  number  of 
hours'  work  that  these  persons  would  have 
been  willing  to  provide  at  the  current  rate  of 
wages  under  current  conditions  of  employ- 
ment. The  precise  definition  of  this  rate  and 
these  conditions  presents  considerable  diffi- 
culty. It  has,  however,  been  accomplished 
with  reasonable  success  by  the  draftsmen  of 
the  British  National  Insurance  Act.  Un- 
employment prevails,  from  the  point  of  view 
of  that  Act,  when  a  man  cannot  obtain  the 
work  he  desires  (1)  otherwise  than  in  a  situa- 
tion vacant  on  account  of  a  stoppage  of  work 
due  to  an  industrial  dispute,  (2)  in  the  district 
where  he  was  last  ordinarily  employed,  other- 
wise than  at  a  rate  lower,  or  on  conditions  less 
favourable,  than  those  which  he  habitually 
obtained  in  his  usual  employment  in  that 
district,  or  would  have  obtained  had  he  con- 
tinued to  be  so  employed,  (3)  in  any  other 
district,  otherwise  than  at  a  rate  of  wage  lower, 
or  on  conditions  less  favourable,  than  those 
generally  obtained  in  such  district  by  agree- 
ment between  associations  of  employers  and 


MEANING   AND   MEASUREMENT     17 

of  workmen,  or,  failing  any  such  agreement, 
than  those  generally  recognized  in  such  district 
by  good  employers.^  Unemployment,  thus 
conceived,  does  not,  it  will  be  noticed,  stand 
in  any  constant  relation  to  the  quantity  of 
work  performed,  even  within  a  single  industry 
in  which  the  length  of  the  normal  working-day 
is  given.  For,  over  any  period  of  time,  the 
same  aggregate  quantity  of  work  may  be 
associated,  either  with  little  unemployment 
balanced  against  little  overtime,  or  with  much 
unemployment  balanced  against  much  over- 
time. This  circumstance  is  responsible,  it 
must  be  admitted,  for  a  certain  awkwardness 
in  our  definition;  but  it  is  an  awkwardness 
which  cannot  be  avoided. 

The  result  which  has  been  reached  has  the 
advantage  of  being  reasonably  precise.  And 
it  has  also,  as  will  appear  from  the  general 
course  of  this  discussion,  the  further  advantage 
of  being  well  adapted  to  facilitate  the  conduct 
of  our  inquiry.  It  must,  however,  be  clearly 
recognized  that  the  definition  we  have  decided 
to  adopt  departs  in  one  important  respect 
from  the  popular  use  of  words.  In  common 
speech,  unemployment  is  not  infrequently 
contrasted  with  short  time  or  the  working  of 
a  reduced  number  of  days  in  the  week.  In 
our  definition  these  things  appear  as 
parts,  or  particular  forms,  of  unemployment. 


18  UNEMPLOYMENT 

It  would  have  been  possible  to  avoid  this 
departure  from  common  usage,  had  we  re- 
tained the  ordinary  meaning  of  the  terms 
unemployment  and  short-time,  and  intro- 
duced a  new  term  "  involuntary  idleness," 
to  represent  both  of  them  together.  On  the 
whole,  the  objections  to  that  course  seem 
somewhat  stronger  than  those  to  the  course 
that  is  here  adopted.  Some  readers,  no  doubt, 
would  have  preferred  that  recourse  should  have 
been  had  to  it.  After  all,  however,  the  issue  is 
a  verbal  one.  So  long  as  it  is  clearly  borne  in 
mind  that  the  term  unemployment  is  used  in 
this  book  to  cover  short- time  and  short- work  as 
well  as  unemplo}Tnent  as  popularly  conceived, 
no  misunderstanding  can  possibly  result. 

The  problem  of  definition  being  thus  settled, 
we  may  turn  to  the  second  and  remaining  topic 
of  this  preliminary  chapter.  How  far  and  for 
what  purposes  is  it  practicable  to  submit  the 
unemployment  that  prevails  in  modern  States 
to  reliable  measurement?  The  answer  to 
that  question  must,  of  course,  be  different  in 
different  countries,  according  to  the  character 
of  the  statistical  material  available  in  them. 
It  may  be  said  at  once  that,  in  every  case,  this 
material  is  exceedingly  incomplete  and  im- 
perfect, and  that,  in  no  case,  is  any  compari- 
son between  the  amount  of  unemplojTnent 
prevailing  in  any  two  countries  practicable. 


MEANING   AND   MEASUREMENT     19 

Any  more  detailed  statement  concerning  the 
statistics  of  foreign  countries  would  fall  out- 
side the  scope  of  this  volume.  As  regards  the 
United  Kingdom,  however,  it  will  be  worth 
while  to  consider  the  problem  of  measuring 
unemployment  a  little  more  closely. 

The  National  Insurance  Act  has  made 
available  new  data  as  regards  the  building  and 
engineering  trades,  in  which  insurance  against 
unemployment  is  now  compulsory.  When 
certain  difficulties  as  to  the  classification  of 
the  various  sub-divisions  of  these  trades  have 
been  cleared  up,  this  new  information  is  likely 
to  prove  of  great  importance,  both  directly 
and  also  as  a  check  upon  our  other  statistical 
sources. 2  As  yet,  however,  the  time  has 
hardly  arrived  at  which  a  study  of  this  in- 
formation— and,  still  less,  of  the  indirect  in- 
ferential information  obtainable  from  Part  I 
of  the  Insurance  Act — can  be  profitably 
undertaken.  The  new  data,  therefore,  will 
not  be  considered  here.  Apart  from  them, 
our  principal  sources  of  information  are 
embraced  in  two  groups  of  figures,  referring, 
respectively,  to  industries  in  which  periods  of 
depression  are  chiefly  met  by  working  short 
time,  and  to  industries  in  which  they  are 
chiefly  met  by  the  dismissal  of  hands.  Among 
industries  addicted  to  the  practice  of  short- 
time,   coal-mining   and   various   departments 


20  UNEMPLOYMENT 

of  the  iron  and  steel  trades  furnish  statistical 
information.  The  Board  of  Trade  obtains 
returns  from  the  majority  of  employers 
engaged  in  them  as  to  the  number  of  days  on 
which  men  are  at  work,  the  number  of  fur- 
naces that  are  in  blast  and  the  number  of  shifts 
that  are  worked.  Among  industries  in  which 
dismissal  of  hands  is  generally  resorted  to 
in  preference  to  short-time,  a  large  number,  to 
wit  the  engineering,  ship-building,  cutlery, 
printing,  book-binding,  wood-working  and 
building  trades,  also  furnish  statistical  infor- 
mation. The  Board  of  Trade  obtains  returns 
as  to  the  number  of  Trade  Unionists  engaged  in 
these  occupations  who  are  in  receipt  of  un- 
employment benefit — which  means  that  they 
are  out  of  work  neither  on  account  of  sickness  * 
nor  because  they  are  engaged  in  an  industrial 
dispute — at  the  end  of  every  month.  These 
two  sets  of  figures  both  appear  at  first  sight 
to  provide  measures  of  unemployment,  in 
the  sense  in  which  that  term  has  been  here 
defined,  as  regards  those  parts  of  the  in- 
dustrial field  to  which  they  refer.  Before, 
however,  a  proper  judgment  can  be  formed  as 

•  In  France  the  Trade  Union  figures  of  unemployment 
include  those  who  are  out  of  work  on  account  of  sickness. 
This  is  one  of  the  many  circumstances  that  vitiate  fiscal 
and  other  arguments  founded  on  a  direct  comparison  of 
the  unemployment  statistics  of  France  and  the  United 
Kingdom. 


MEANING   AND   MEASUREMENT    21 

to  their  meaning  and  significance,  several 
important  questions  must  be  asked,  and,  so 
far  as  practicable,  answered. 

The  first  question  is  :  how  far  do  these 
figures  afford  at  any  time  a  true  measure  of 
the  quantity  of  unemployment  prevailing 
among  those  groups  of  workpeople  to  whom 
they  immediately  refer?  As  regards  the 
figures  collected  from  employers  concerning 
the  number  of  days  worked  in  mines  and  so 
forth,  the  matter  seems  clear  enough.  Apart 
from  mere  clerical  errors,  these  figures  provide 
a  correct  measure  of  the  volume  of  employ- 
ment under  the  hand  of  the  employers  making 
the  returns.  But  it  is  not  possible,  from  the 
volume  of  employment,  to  infer  a  precisely 
true  figure  of  unemployment,  because  the 
number  of  men  attached  to  the  industry  in 
question  and  prepared  for  full  work  there  if 
they  can  get  it,  is  liable  to  variations,  and 
these  variations  are  not  recorded.  On  the 
face  of  things,  the  figures  collected  from 
Trade  Unions  are  more  satisfactory.  Even 
here,  however,  there  are  several  sources  of 
possible  error.  The  chief  of  these  is  con- 
nected with  the  fact  that  the  Trade  Union 
percentage  refers  to  the  men  in  receipt  of 
unemployment  benefit,  whereas  there  are 
apt  to  be  some  men  unemployed  who  are 
not  in  receipt  of  this  benefit.     These  include, 


22  UNEMPLOYMENT 

not  only  the  men  who  are  too  lazy  to  claim 
benefit,  but  also  those  who  have  been  out  of 
work  either  too  long  or  not  long  enough  to 
be  entitled  to  claim  it.  The  risk  of  error 
from  this  source  is,  however,  much  smaller 
in  the  United  Kingdom  than  it  is  elsewhere. 
Whereas,  for  example,  in  Germany  benefit  as 
a  rule  (in  90  per  cent,  of  the  Unions)  lasts  for 
less  than  ten  weeks,  in  England  only  11  per 
cent,  of  the  Unions  have  so  short  a  period. 
Again,  whereas  in  the  German  Unions  benefit 
is  deferred  till  from  seven  to  fifteen  days  of 
unemployment  have  been  passed,  in  the 
British  Unions  it  begins  after  from  two  to 
six  days  of  unemployment.^  Furthermore, 
in  British  Unions  the  Labour  Department, 
to  some  extent,  corrects  from  outside  informa- 
tion the  figures  in  respect  of  those  whose 
benefit  has  run  out.  On  the  whole,  it  appears 
that,  while  the  statistics  collected  from  em- 
ployers as  to  the  number  of  days  worked  in 
mines  and  the  number  of  shifts  worked  in  iron 
and  steel  mills  do  not  yield  a  reliable  figure 
of  the  unemployment  prevailing  there,  the 
statistics  collected  from  Trade  Unions,  in  the 
other  broad  class  of  industries,  are  fairly  satis- 
factory as  regards  those  groups  of  workpeople 
to  which  they  immediately  refer. 

We  may,   therefore,  pass  on  to  a  second 
question.     Given  that  the  percentage  of  un- 


MEANING   AND   MEASUREMENT    23 

employment  returned  by  a  Union  measures 
the  real  unemployment  in  that  Union  with 
sufficient  correctness,  does  it  measure  satis- 
factorily the  real  unemployment  in  the  trade 
of  which  the  Union  forms  a  part?  The 
most  obvious  difficulty  here  is  that,  in  most 
industries,  only  a  small  proportion  of  the 
workpeople  employed  are  Unionists.  The 
Board  of  Trade  estimates  that,  of  all  the 
men  employed  throughout  the  United  King- 
dom, 70  per  cent,  of  those  engaged  in  mining 
and  quarrying  are  Unionists  :  1  in  5  of  those 
engaged  in  building  :  1  in  4  of  those  in  metal 
work,  engineering  and  shipbuilding  :  1  in  2  in 
the  textile  trades  :  1  in  5  in  clothing;  1  in  4 
in  railways ;  *  while  other  industries,  notably, 
of  course,  agriculture,  are  even  less  well 
organized.  This  being  so,  it  is  necessarily 
uncertain  how  far  the  percentage  of  im- 
employment  among  Trade  Union  members 
in  any  industry  is  a  fair  measure  of  unem- 
ployment among  non-Unionists  also.  On  the 
one  hand.  Unionists  are  possessed  of  an 
effective  organization  for  helping  them  to 
obtain  employment  when  out  of  work;  but, 
on  the  other  hand,  non-Unionists  are  free, 
whereas  Unionists  are  not  free,  to  accept  the 
offer  of  jobs  at  less  than  the  "  standard  "  rate. 
What  the  resultant  effect  of  these  conflicting 
tendencies  may  be  is  not  definitely  known. 


24  UNEMPLOYMENT 

Information  supplied  in  the  first  Report  on  the 
working  of  the  Unemployment  Insurance  law 
in  England  gives,  however,  some  ground  for  the 
opinion  that  Trade  Union  figures  are  reasonably 
representative  of  the  whole  of  the  trades  to 
which  the  Unions  belong.  For,  from  a  study  of 
the  statistics  of  unemployment  among  Unionist 
and  non-Unionist  members  of  the  compulsorily 
insured  trades,  Mr.  Beveridge  concludes : 
"  tLere  is  nothing  to  suggest  any  substantial 
difference  between  the  proportion  of  cases  of 
unemployment  among  the  members  of  associa- 
tions and  among  those  not  belonging  to 
associations."  ^ 

If,  when  allowance  has  been  made  for 
the  preceding  qualifications,  we  are  satisfied 
that  the  Trade  Union  figures  in  a  trade  for 
which  returns  are  made  give  a  fair  measure 
of  unemployment  in  that  trade,  we  have  next 
to  ask  a  third  question :  how  far  will  a 
combination  of  the  figures  furnished  by  the 
various  Trade  Unions  afford  a  fair  measure  over 
the  aggregate  of  industries  making  returns  ? 
An  important  consideration  becomes  relevant 
here.  The  combined  figure,  which  is  com- 
monly employed  in  the  United  Kingdom,  is 
constructed  in  such  a  way  that  the  "  weight," 
or  importance,  attached  to  the  percentage  of 
unemployment  recorded  for  any  industry  is 
proportioned  to  the  number  of  men  in  respect 


MEANING  AND   MEASUREMENT    25 

of  whom  returns  are  made  in  that  industry. 
Since,  however,  out-of-work  benefit  is  more 
likely  to  be  arranged  for  by  men  who  expect 
to  be  thrown  out  of  work  a  good  deal  than 
by  men  who  do  not  expect  this,  it  is  probable 
that  the  number  of  returns  relatively  to  the 
number  of  employees  will  be  larger  in  the 
more  fluctuating  industries,  such  as  engineer- 
ing and  shipbuilding,  than  in  the  more  stable 
industries.  Hence,  an  average  like  the 
British  official  average  is  likely  to  exaggerate 
the  true  percentage  of  unemployment  in 
the  whole  group  of  industries,  in  respect 
of  which  we  have  Trade  Union  returns.  A 
more  accurate  result  would  be  given  by  an 
average  arrived  at  by  attaching  importance 
to  the  percentage  of  unemployment  recorded 
in  different  industries  in  proportion,  not  to  the 
number  of  returns  they  supply,  but  to  the 
number  of  workpeople  found  by  the  census 
enumerators  to  be  occupied  in  them.  The 
difference  made  by  this  change  may  be  con- 
siderable. In  1895,  of  the  persons  covered 
by  the  returns  obtained,  46  per  cent,  were 
occupied  in  the  metal  industries,  21  per  cent, 
in  building  and  furnishing,  19  per  cent,  in 
printing,  10  per  cent,  in  coal,  3  per  cent,  in 
textiles  and  1  per  cent,  in  other  trades.  Sir 
H.  Llewellyn  Smith  found  that,  by  weighting 
with  the  census  figures,  on  an  occasion  used 


26  UNEMPLOYMENT 

for  a  test,  he  reduced  the  resultant  percentage 
from  7  to  4*2.^  In  Hke  manner,  Mr.  Beveridge 
found  that,  while,  with  weighting  in  propor- 
tion to  the  number  of  returns,  the  unemploy- 
ment percentage  was  larger  in  1893  than  in 
1904,  with  the  census  system,  which  reduced 
the  importance  attached  to  the  special  mis- 
fortunes suffered  in  1893  by  shipbuilders 
and  engineers,  it  was  smaller  in  1893.' 
Hence,  it  would  seem  that  the  British  official 
figure  requires  careful  analysis  before  it  is 
employed  as  an  index  of  aggregate  unemploy- 
ment in  the  trades  making  returns. 

Even  granted,  however,  that  an  adequate 
measure  of  unemployment  in  the  aggregate 
of  trades  making  returns  has  been  obtained, 
we  have  still  to  ask,  finally,  whether  that 
figure  gives  a  true  picture  of  unemployment 
in  the  country  as  a  whole.  The  trades  for 
which  returns  are  not  available  contain  two 
broad  divisions,  the  exceptionally  stable 
skilled  occupations,  such  as  railway  service, 
and  the  great  bulk  of  unskilled  occupations. 
In  the  former  group  insurance  against  un- 
employment is  not  found,  because  employ- 
ment is  steady;  in  the  latter  group  it  is 
not  found  because  the  workpeople  concerned 
are  too  poor  to  afford  it.  We  have  good 
reason  to  believe  that  the  proportion  of  un- 
employment  experienced  by   the    uninsured 


MEANING   AND   MEASUREMENT    27 

skilled  occupations  is  smaller  than  that 
experienced  by  the  trades  making  returns; 
but  of  the  state  of  things  prevailing  among 
unskilled  workpeople  we  are  wholly  ignorant. 
Even  though  all  other  difficulties  were  success- 
fully overcome,  this  ignorance  would  make  it 
impossible  to  derive  from  existing  statistics 
any  measure  of  the  aggregate  amount  of  unem- 
ployment prevailing  throughout  the  country. 
The  Board  of  Trade  figure,  or  some  other  figure, 
constructed  from  the  Trade  Union  returns  on 
the  basis  of  a  different  system  of  "  weights,'* 
may,  no  doubt,  be  used  with  fair  confidence 
as  an  index  of  the  direction  in  which  un- 
employment in  the  country  as  a  whole  is 
moving — whether  it  is  becoming  larger  or 
smaller — between  different  times ;  but  it  cannot 
safely  be  used  as  a  measure  of  the  absolute 
quantity  of  unemployment  existing  in  the 
country  at  any  one  time.  We  are  able  to 
define  unemployment  and  to  detect  its  growth 
and  diminution,  but  adequately  to  measure 
its  quantity  is  a  task  to  which  our  resources 
are  at  present  unequal.  Until  this  is  fully 
understood,  the  chart  which  is  printed  on  the 
following  page  may  lead  to  rash  and  ill- 
grounded  inferences.  When  it  is  understood, 
however,  the  study  of  that  chart  should 
facilitate  and  throw  light  upon  the  investiga- 
tion that  is  to  follow.     The  percentage  figures 


EFFECTS   OF   UNEMPLOYMENT    29 

there  represented  gain  in  vividness  and  mean- 
ing, when  we  recollect  that,  if  every  workman 
changed  his  occupation  once  a  year  and  took 
three  days  in  the  process,  an  annual  average 
of  about  one  per  cent,  unemployment  would 
result. 


CHAPTER   III 

THE    EVIL    EFFECTS    OF    UNEMPLOYMENT 

From  the  standpoint  of  this  volume  the 
problem  of  defining  and  measuring  unemploy- 
ment is,  as  has  already  been  hinted,  of  second- 
ary interest.  The  case  is  very  different, 
however,  with  the  problem,  to  which  we  now 
turn,  of  tracing  the  connection  that  exists 
between  unemployment  and  the  social  evils 
with  which  it  is  associated.  This  problem 
is  fundamental.  From  our  point  of  view,  the 
whole  significance  of  unemployment  lies  in 
the  evil  consequences  to  which  it  gives  birth. 
Our  study  is  directed  wholly  to  the  practical 
object  of  mitigating  or,  so  far  as  may  be, 
abolishing  these  evils.  No  effective  advance, 
therefore,  can  be  made  till  their  nature  and 
the  relation  in  which  they  stand  to  unemploy- 


30  UNEMPLOYMENT 

ment  itself  have  been,  at  least  roughly,  deter- 
mined. In  the  present  chapter  I  shall  attempt 
some  outline  account  of  these  matters. 

First  and  most  obviously,  unemployment 
usually  means  loss  of  wages.  The  workman 
unwillingly  idle  is  anxious  to  do  more  work 
than  he  does  in  fact  do,  not,  of  course,  as  a 
general  rule,  because  he  likes  to  do  a  great  deal 
of  work,  but  because  his  liking  for  the  wage 
to  which  this  work  leads  more  than  outweighs 
his  dislike  of  its  immediate  irksomeness. 
Generally  speaking,  a  reduction  in  the  volume 
of  unemployment  among  any  group  of  work- 
people would  mean  an  increase  in  the  aggre- 
gate earnings  of  that  group,  even  in  those 
cases  where  the  reduction  was  brought  about 
by  a  lowering  of  some  artificially  enhanced 
wage-rate.  Hence,  we  may  set  down  as  one 
element — usually,  of  course,  a  very  important 
element — in  the  social  evil  involved  in  un- 
employment, the  loss  of  earnings  which  work- 
people are  anxious,  but  unable  to,  obtain  by 
further  work. 

Unemployment,  however,  is  frequently 
associated,  not  only  with  injury  to  the  total 
quantity  of  a  workman's  earnings  over  a 
period  of  years,  but  also,  in  so  far  as  its 
amount  varies  from  time  to  time,  with  fluctua- 
tions in  those  earnings.  If  foresight  were  per- 
fect  and   workpeople   were  always   ready  in 


EFFECTS   OF  UNEMPLOYMENT    31 

times  of  prosperity  to  make  full  provision  for 
the  bad  times  that  might  follow,  this  circum- 
stance would  have  no  great  importance.  As 
a  matter  of  fact,  however,  everybody  knows 
that  foresight  is  not  perfect,  and  that  work- 
people do  not,  in  general,  make  full  provision 
for  rainy  days  to  come.  This  is  the  case  even 
when  fluctuations  of  income,  due  to  fluctua- 
tions in  employment,  are  regular  and  capable 
of  being  foretold  with  fair  precision — much 
more  when  they  are  irregular  and  spasmodic. 
Neither  the  practice  of  individual  saving  nor 
that  of  collective  insurance  has  been,  or,  so 
far  as  present  indications  go,  is  in  the  least 
likely  to  be  developed  up  to  the  point  of 
rendering  the  expenditure  of  working  class 
families  completely  stable,  so  long  as  their 
incomes  continue  variable.  Unemployment, 
therefore,  wherever  individuals  are  affected 
by  it  to  a  different  extent  at  different  times, 
implies  variable  expenditure.  But,  when  the 
average  level  per  week  of  any  man's — 
especially  of  a  poor  man's — expenditure  is 
given,  it  is  evident  that  the  satisfaction  he  can 
derive  from  it  will  be  smaller  the  more  variable 
are  the  individual  weekly  expenditures  from 
which  the  average  is  made  up.  Unusually 
large  expenditure  in  prosperous  times  does 
not  compensate  for  unusually  small  expen- 
diture   in    seasons    of    depression,    either   as 


32  UNEMPLOYMENT 

regards  immediate  enjoyment  or  as  regards 
indirect  and  ultimate  consequences  to  health. 
In  extreme  cases  this  is  obvious;  a  week  of 
starvation  followed  by  a  week's  debauch  is  not 
equivalent  to  a  fortnight  of  moderate  sub- 
sistence. Thus,  we  may  set  out,  as  a  second 
element  in  the  social  evil  associated  with  un- 
employment, the  fact  that  such  unemploy- 
ment usually  falls  upon  working  men  with 
varying  force  at  different  times  and,  con- 
sequently, renders  their  standard  of  living 
variable. 

The  elements  of  evil  discussed  so  far  are 
associated  with  all  forms  of  unemployment, 
even  that  which  appears  exclusively  in  the 
guise  of  "  short -time."  But,  when  unem- 
ployment comes  about  in  such  a  way  that 
certain  individuals  are  rendered  definitely 
"unemployed"  for  several  weeks,  or  even 
months,  at  a  time  there  emerges  a  further 
very  important  element.  This  form  of  un- 
employment threatens  to  inflict  permanent 
injury  on  the  industrial  character  of  those  on 
whom  it  falls.  It  is  not  merely  that  technical 
skill  is  injured  through  lack  of  practice, 
though  this,  in  some  instances,  may  be  a 
matter  of  real  significance.  The  main  point 
is  that  the  habit  of  regular  work  may  be  lost, 
and  self-respect  and  self-confidence  destroyed, 
so  that,  when  opportunity  for  work  does  come. 


EFFECTS   OF   UNEMPLOYMENT      33 

the  man,  once  merely  unemployed,  may  be 
found  to  have  become  unemployable.  The 
terrible  strain  that  lack  of  work  imposes  upon 
the  morale  of  the  unemployed  is  brought  out 
with  great  force  in  a  recent  American  inquiry. 
"  If  a  period  of  enforced  idleness  were  a 
season  of  recuperation  and  rest,  there  would 
be  a  good  side  to  lack  of  employment.  But 
enforced  idleness  does  not  bring  recuperation 
and  rest.  The  search  for  labour  is  much  more 
fatiguing  than  labour  itself.  An  applicant 
sitting  in  one  of  the  Charity  offices  waiting 
for  the  arrival  of  the  agent,  related  his  ex- 
periences while  trying  to  get  work.  He 
would  rise  at  five  o'clock  in  the  morning  and 
walk  three  or  four  miles  to  some  distant  point 
where  he  had  heard  work  could  be  had.  He 
went  early  so  as  to  be  ahead  of  others,  and  he 
walked  because  he  could  not  afford  to  pay 
car  fare.  Disappointed  in  securing  a  job  at 
the  first  place,  he  would  tramp  to  another 
place  miles  away,  only  to  meet  with  dis- 
appointment again.  ...  As  the  man  told 
his  story,  he  drove  home  the  truth  that  lack 
of  employment  means  far  more  than  simply  a 
loss  in  dollars  and  cents ;  it  means  a  drain 
upon  the  vital  forces,  that  cannot  be  measured 
in  terms  of  money."  ^  Under  a  strain  of  this 
kind  a  man's  morale  may  break,  and  he  may 
pass,  never  to  return,  across  the   line  which 

B 


34  UNEMPLOYMENT 

separates  independent  poverty  from  a  shiftless 
and  unworthy  pauperism. 

Yet  another  element  of  evil  remains.  Un- 
employment varies  in  amount  from  time  to 
time  in  ways  that  are  uncertain,  in  the  sense 
that  they  cannot  be  foretold.  And  the  un- 
certainty that  attaches  to  unemployment  in 
the  aggregate  attaches,  of  course,  in  still 
stronger  measure  to  its  incidence  in  respect 
of  particular  individuals.  There  necessarily 
results,  among  those  poor  persons  whose 
reserve  fund  is  small,  a  haunting  sense  of 
insecurity  and  danger,  which  is  in  itself  a 
serious  evil.  Sir  H.  Llewellyn  Smith  sums 
up  the  matter  thus  :  "  It  is,  I  think,  a  definite 
induction  from  history  and  observation  that, 
when  a  risk  falls  outside  certain  limits  as 
regards  magnitude  and  calculability,  when,  in 
short,  it  becomes  what  I  may  call  a  gambler's 
risk,  exposure  thereto  not  only  ceases  to  act 
as  a  bracing  tonic,  but  produces  evil  effects 
of  a  very  serious  kind."  ^  In  the  same  spirit 
Professor  Leroy  Beaulieu  declares,  and  is 
surely  right  in  declaring  :  "  It  is  not  the  in- 
sufficiency of  pay  which  constitutes,  in  general 
and  apart  from  exceptional  cases,  the  social 
malady  of  to-day,  but  the  precariousness  of 
employment."  ^ 

What  has  been  said  makes  it  plain  that 
the    evil    suffered    in    any   country    in    con- 


POPULAR   EXPLANATIONS         35 

sequence  of  unemployment  depends,  not  only 
on  the  volume  of  unemployment  which,  over 
an  average  of  good  and  bad  years,  prevails 
there,  but  also  on  the  way  in  which  this 
volume  is  distributed  among  people,  and  (be 
it  added  for  completeness)  through  time. 
None  the  less,  it  is  true  that,  other  things 
being  equal,  the  amount  of  evil  will  be  greater, 
the  greater  is  the  average  volume  of  un- 
employment; and  that  devices  making  for  a 
diminution  in  this  average  volume  would  also, 
in  general,  make  for  an  increase  in  national 
welfare.  It  is  upon  the  volume  of  unem- 
ployment, therefore, — not  the  volume  existing 
at  any  one  moment,  but  the  volume  inter- 
preted in  a  more  general  sense  as  the  average 
volume  prevailing  over  a  long  period — that 
the  discussion  embodied  in  the  next  eight 
chapters  of  this  work  is  concentrated. 


CHAPTER   IV 

SOME     POPULAR     EXPLANATIONS     OF 
UNEMPLOYMENT 

As  a  prelude  to  the  positive  part  of  our 
inquiry  into  the  causes  by  which  the  average 
volume  of  unemployment  is  determined,  it  is 


36  UNEMPLOYMENT 

convenient  to  pass  in  review  certain  popular 
explanations  by  which,  in  this  matter,  counsel 
is  frequently  darkened.  These  explanations 
all  start  from  the  theory  that,  as  things  are 
at  present,  "  there  is  not  enough  work  to  go 
round,"  and  they  ail  end  in  the  practical  con- 
clusion that,  in  some  way  or  another,  more 
work  ought  to  be  made.  Here  meet  on 
common  ground  the  enemies  of  foreign  im- 
ports, the  denouncers  of  prison-made  goods, 
and  those  who  would  cure  unemployment  by 
reducing  the  hours  of  labour.  It  is  not  sug- 
gested that  all  their  various  diagnoses  and 
various  prescriptions  involve  an  equal  measure 
of  folly.  But  they  do  all  embrace,  sometimes 
in  association  with  other  errors  and  sometimes 
in  isolation,  the  fundamental  doctrine  which 
economists  have  long  known  by  the  name  of 
the  "  work-fund  fallacy."  They  all  assert 
that,  if  Smith  and  Jones  do  less  work  or  do 
no  work  at  all,  there  will  be  more  left  over 
for  Brown  and  Robinson  :  if  foreigners  stop 
making  motor-cars  for  our  markets,  or  if 
prisoners  stop  making  clothes,  or  if  tramway 
conductors  work  six  hours  instead  of  twelve, 
by  so  much  is  room  made  for  "  the  un- 
employed "  to  be  "  absorbed."  This  doctrine 
has  so  wide  a  currency  and  is,  withal,  so 
plausible,  that  it  needs  to  be  examined  with 
considerable  care. 


POPULAR   EXPLANATIONS         37 

What  makes  the  doctrine  plausible  is  the 
fact  that  it  contains  an  element  of  undoubted 
truth.  It  is  true  that,  if  foreigners  or  prisoners 
are  prevented  from  sending  to  our  markets  a 
particular  type  of  goods,  say  steel  billets,  there 
will  be  more  employment  available  in  the 
particular  English  industry  which  is  engaged 
in  making  these  things.  And  this  is  not 
merely  a  temporary  incident,  to  disappear 
again  so  soon  as  people  have  adapted  them- 
selves to  the  new  conditions.  On  the  con- 
trary, there  is  every  probability  that  the 
extra  employment  available  in  the  particular 
industry  afifected  will  be  permanent.  As 
regards  each  industry  separately  there  is. 
speaking  roughly  and  practically,  a  fixed 
work-fund.  What  more  natural  than  the 
inference  that  such  a  fixed  work-fund  also 
exists  as  regards  all  a  country's  industries 
collectively  ?  Consider  more  particularly  the 
case  of  workpeople  engaged  in  industries 
subject  to  severe  foreign  competition.  They 
see,  may  be,  orders  which  their  own  employei*s 
were  willing  and  eager  to  supply,  going  again 
and  again  to  foreign  firms.  On  special 
occasions,  when  their  own  firm  has  an  ex- 
ceptional spell  of  success  with  its  tenders,  they 
experience  the  full  glory  of  a  boom.  Meeting 
other  workpeople  in  other  occupations,  they 
find  that  the  case  is  the  same  with  them. 


38  UNEMPLOYMENT 

Each  trade  knows  perfectly  well  that,  if 
foreign  competition  with  its  product  were  cut 
off,  there  would  be  more  work  available  in  it 
for  native  hands ;  and  each  trade  believes  its 
neighbours,  when  they  assert  that  the  case  is 
similar  with  them.  If  only,  they  argue,  we 
could  work  shoulder  to  shoulder,  and,  by 
political  action,  keep  the  foreigner  out,  there 
would  be  work  available  for  us  all,  and  un- 
employment would  become  an  evil  of  the  past. 
And  reasoning  of  an  exactly  similar  kind  is 
open  to  those  persons  whose  products  compete 
with  prison-made  goods,  or  those  who  are 
desirous  of  employment  in  industries  where 
the  workmen  at  present  work  long  hours  : 
if  these  hours  were  only  halved  there  would  be 
room  for  the  employment  of  twice  as  many  men . 
Now,  it  is  easy  to  show  that  the  reasoning 
process  by  which  these  results  are  attained  is 
defective  in  point  of  logic.  All  arguments, 
which  infer  that,  because  a  given  policy,  if 
applied  to  A  alone,  would  benefit  A,  if  applied 
to  B  alone,  would  benefit  B,  and,  if  applied 
to  C  alone,  would  benefit  C,  therefore,  that 
policy,  if  applied  at  once  to  A,  B  and  C  to- 
gether, would  benefit  them  all,  involve  what 
logicians  call  the  fallacy  of  composition.  A 
famous  and  orthodox  illustration  of  this 
fallacy  is  provided  by  the  industry  of  picking 
pockets.     If  a  number  of  men  sit  round  a  table, 


POPULAR   EXPLANATIONS         39 

it  is  evidently  true  that  Smith,  by  taking  the 
purse  of  his  left-hand  neighbour,  will  gain; 
Jones,  by  doing  likewise  to  his  left-hand 
neighbour  will  similarly  gain;  and  so  on 
throughout.  But  it  is  fallacious  to  infer  from 
this  that,  if  every  member  of  the  group  picks 
the  pocket  of  his  left-hand  neighbour,  the 
group  as  a  whole  will  gain.  The  secret  of  the 
fallacy  is,  of  course,  that,  in  the  transition 
from  the  effect  upon  each  to  the  effect  upon 
all,  the  possibility  is  ignored  that  the  gain 
which  a  policy,  when  pursued  by  Smith  alone, 
yields  to  Smith,  may  only  be  obtainable  at 
the  cost  of  corresponding  loss  to  others.  The 
popular  argument  about  unemployment,  which 
was  set  out  above,  embodies  this  defect,  and 
fails,  therefore,  to  establish  the  conclusion 
at  which  it  aims.  For,  from  the  fact  that 
there  is  (substantially)  a  fixed  work-fund 
from  the  standpoint  of  each  industry  separ- 
ately, it  does  not  follow  that  there  is  a  fixed 
work-fund  from  the  standpoint  of  all  industries 
together. 

It  would,  however,  be  unwarrantable  to 
conclude  that,  because  the  reasons  which 
popular  thought  offers  in  defence  of  any  thesis 
are  invalid,  therefore,  that  thesis  is  untrue.  If 
it  were  a  good  ground  for  rejecting  an  opinion 
that  many  persons  entertain  it  for  bad  reasons, 
there  would,  alas,  be  few  current  beliefs  left 


40  UNEMPLOYMENT 

standing !  As  a  matter  of  fact,  however, 
conclusions  are  often  right  when  the  reasons 
adduced  by  their  supporters  are  ridiculously 
wrong.  It  is  not  undesirable  to  walk  under 
a  builder's  ladder  because  to  do  so  is,  in  some 
magical  manner,  "  unlucky  " ;  but  those  who 
dislike  the  impact  of  accidentally  descending 
bricks  will,  nevertheless,  do  wisely  to  refrain. 
Indeed,  the  reasoning  process,  which  seeks  to 
rebut  a  conclusion  merely  by  disproving  the 
cogency  of  a  particular  argument  used  in  its 
support,  itself  involves  a  fallacy  to  which 
logicians  have  given  a  name — the  fallacy 
ignoratio  elenchi.  We  are  not,  therefore, 
entitled  to  cut  short  our  inquiry  concerning 
unemployment  and  the  fixed  work-fund  at  the 
point  reached  so  far.  It  is  still  necessary  to 
inquire  by  direct  study  whether  the  extra 
employment,  which  would  be  made  available 
in  a  particular  trade  by  cutting  off  the  com- 
petition of  foreigners  or  prisoners  in  respect 
of  that  trade,  would  be  nett  extra  employment, 
or  would  be  balanced  by  a  corresponding 
loss  of  employment  in  other  industries. 

Now,  in  the  case  of  foreign  trade,  with 
regard  to  which  this  question  has  been  most 
prominently  raised,  it  is  widely  held  that  a 
conclusive  answer  can  be  given  by  reference 
to  the  essential  connection  that  exists  between 
imports  and  exports.     Broadly  speaking,  the 


POPULAR  EXPLANATIONS         41 

goods  and  services  which  every  country 
imports  must,  since  exports  constitute  the 
only  ultimate  means  of  payment  for  its 
purchases,  be  balanced  by  an  equivalent 
value  of  goods  and  services  exported.  Of 
course,  it  is  not  necessary  that  the  imports 
of  any  country  from  any  single  foreign 
country  should  balance  the  exports  to  that 
country.  What  is  bought  in  France  may  be 
paid  for  indirectly  by  exports  to  Germany, 
employed,  in  effect,  to  discharge  the  debts  of 
Frenchmen  there.  Nor  is  it  necessary  that 
the  imports  of  a  country,  even  from  the  rest 
of  the  world  collectively,  should  balance  the 
exports  at  a  particular  moment;  for,  of 
course,  as  everybody  knows,  there  is  a  great 
deal  of  borrowing  and  lending  between 
nations.  Nor,  finally,  is  it  necessary,  even 
when  allowance  has  been  made  for  loans,  that 
those  imports,  which  are  recorded  in  tables  of 
trade,  should  balance  those  exports  which  are 
similarly  recorded ;  for  there  may  exist  a  large 
mass  of  services  entering  into  international 
trade — notably  the  services  rendered  by  ships 
and  by  the  banking  community — of  which  no 
records  are  kept.  With  these  and  other 
reservations  of  a  minor  character,  it  remains, 
however,  not  merely  true,  but  a  truism,  that 
a  country's  exports  to  the  rest  of  the  world 
must  balance  her  imports,  and  that  therefore, 

B  2 


42  UNEMPLOYMENT 

other  things  remaining  the  same,  if  the  im- 
ports are  diminished,  the  exports  must  be 
diminished  to  a  corresponding  extent.  In 
view  of  this  circumstance,  it  is  often  argued 
that  whatever  increase  of  employment  might 
be  provided  in  some  industries,  by  restricting 
the  imports  of  foreign  goods  that  compete 
with  them,  would  be  offset  by  an  approxi- 
mately equivalent  decrease  of  employment  in 
other  industries  accustomed  to  manufacture 
for  export.  An  exactly  parallel  argument 
can  be  drawn  out  as  regards  the  effect  of 
prohibitions  against  the  sale  of  goods  made  in 
prisons.  In  the  last  resort,  these  goods  are 
exchanged  (within  the  country,  let  us  suppose) 
against  an  equivalent  value  of  other  goods. 
If  prisoners  are  prevented  from  making  them, 
employment  in  making  them  will  be  given  to 
people  outside  prisons,  but  equivalent  em- 
ployment, which  these  people  formerly  had 
in  making  other  goods  to  exchange  for  them, 
will  be  destroyed.  And  yet  a  third  exactly 
parallel  argument  can  be  framed  as  regards  the 
effect  on  employment  of  reducing  the  hours 
of  labour  in  any  industry ;  the  work  created 
by  the  reduction  is  balanced  by  work  destroyed 
amongst  those  who  formerly  bought  the  fruits 
of  the  extra  hours'  labour  in  the  industry. 

There  is  a  widespread  opinion  that  this  line 
of  argument,  at  all  events  in  its  application 


POPULAR  EXPLANATIONS         43 

to  foreign  trade,  is  decisive.  In  the  view  of 
many  writers  it  completely  disproves  the 
contention  that  the  removal  or  restriction  of 
foreign  competition  can  increase  the  work 
available,  and  so  diminish  the  quantity  of 
unemployment  prevailing,  in  any  country. 
This  opinion,  however,  is  incorrect.  The 
fact  that  a  reduction  of  imports  is  balanced, 
other  things  being  equal,  by  an  equivalent 
reduction  of  exports  does  not,  of  itself,  prove 
that  the  extra  employment  created  in  those 
of  a  country's  industries,  which  were  formerly 
exposed  to  foreign  competition,  is  balanced 
by  an  equivalent  reduction  of  employment  in 
those  industries  which  formerly  made  for 
export.  Possible  failures  from  exact  equiva- 
lence, due  to  the  fact  that  equal  values  of 
product  in  different  industries  are  not  neces- 
sarily responsible  for  equal  quantities  of 
employment,  are  not  here  in  question.  There 
is  a  much  more  fundamental  difficulty.  It  is 
true,  the  objector  may  urge,  that  Lancashire, 
for  example,  would  sell  less  cotton  goods 
abroad,  if  British  imports  of  foreign  manu- 
factures were  restricted.  But  this  does  not 
in  the  least  imply  that  she  would  sell  less  cot- 
ton goods  altogether.  On  the  contrary,  those 
goods  which  she  now  exchanges  against 
machines  made  in  Germany  and  the  United 
States,    she    could    then    exchange    against 


44  UNEMPLOYMENT 

exactly  the  same  machines  made  in  other 
parts  of  England  and  Scotland.  In  short,  the 
suggestion  is  that,  when  competing  imports 
are  cut  off,  corresponding  articles  will  be 
made  by  people  in  the  restricting  country 
who  would  otherwise  have  been  unemployed, 
and  who  will  now  have  the  wherewithal  to 
purchase  goods  equivalent  to  those  which  the 
exporting  industries  formerly  sent  abroad. 
Now,  we  have  not,  for  the  moment,  to  inquire 
whether  or  not  this  suggestion  is,  in  fact, 
correct.  The  point  is  that,  whether  in  fact 
correct  or  incorrect,  it  is  not  proved  to  be 
incorrect  by  any  demonstration  of  equiva- 
lence between  imports  and  exports.  Con- 
sequently, contrary  to  what  is  widely  be- 
lieved, such  a  demonstration  does  not  suffice 
to  show  that  the  new  employment  created  in 
some  native  industries  by  the  reduction  of 
imports  is  offset  by  an  equivalent  reduction 
of  employment  in  the  export  trades.  The 
case  is  exactly  the  same  with  the  analogous 
arguments  concerning  the  prohibition  of 
prison-made  goods  and  the  shortening  of  the 
hours  of  labour. 

When  this  is  understood,  an  attempt  is 
sometimes  made  to  support  the  argument 
from  the  equivalence  of  imports  and  exports 
by  an  appeal  to  statistics.  If  it  were  really 
the  case,  it  is  urged,  that  a  diminution  in  the 


POPULAR   EXPLANATIONS         45 

quantity  of  competing  foreign  imports  gives 
room  for  the  manufacture  of  corresponding 
goods  by  persons  at  home  who  would  other- 
wise have  been  unemployed,  we  should 
expect  unemployment  to  be  greatest  in  years 
when  competing  imports  are  most  numerous, 
and  lowest  in  years  when  they  are  least 
numerous:  and  we  should  expect,  further, 
that,  if  the  mass  of  competing  imports  re- 
ceived by  any  country  from  abroad  expands 
over  a  long  period,  the  general  average 
percentage  of  unemployment  in  that  country 
will  also  expand.  As  a  fact,  however,  in  the 
case  of  the  United  Kingdom,  statistics  are 
available  which  directly  belie  these  expecta- 
tions. When  a  curve  is  plotted  to  represent 
for  the  past  fifty  years  the  fluctuations  in 
the  quantity  of  manufactured  and  partly 
manufactured  imports — the  main  part  of  the 
imports  of  the  United  Kingdom  that  can  be 
regarded  as  competitive — and  is  set  alongside 
of  a  curve  representing  the  fluctuations  of 
unemployment  among  members  of  Trade 
Unions,  it  is  found  that,  instead  of  the  high 
points  on  the  curve  which  represents  manu- 
factured imports  corresponding  with  the 
high  points  on  the  curve  which  represents 
unemployment,  and  vice  versa,  there  is  rather 
a  slight  correspondence  of  the  opposite  kind. 
On    the    whole,    unemployment    appears    to 


46  UNEMPLOYMENT 

become  less  in  years  of  booming  imports,  and 
greater  in  years  when  imports  are  relatively 
contracted.  Our  first  expectation,  therefore, 
is  not  borne  out  by  the  facts.  And  our 
second  expectation  is  in  like  case ;  for,  whereas 
since  1860  the  general  average,  taking  one 
year  with  another,  of  British  imports  of 
manufactured  and  partly  manufactured  goods 
has  risen  from  an  initial  thirty  millions  to 
more  than  one  hundred  and  thirty  millions, 
the  general  average  percentage  of  Trade 
Unionists  out  of  employment  has  remained, 
so  far  as  can  be  gathered  from  such  statistics 
as  are  available,  substantially  unchanged.^ 
In  view  of  these  facts,  it  is  argued,  the 
suggestion  that  the  restriction  of  competing 
imports  would  lead  to  the  creation  of  new 
employment  for  workpeople  otherwise  idle, 
and  not  merely  to  a  diversion  of  employment 
from  one  group  of  industries  to  another, 
cannot  be  sustained.  But  the  argument, 
though  possessed  of  some  weight,  is,  neverthe- 
less, inconclusive.  For  it  is  exposed,  in  reply, 
to  the  suggestion  that  booming  imports  of 
manufactures  and  diminished  unemployment 
are  both  due,  when  they  occur,  to  general 
influences  making  for  prosperity.  The  hostile 
effect  of  the  imports  is  masked,  it  is  urged, 
by  the  operation  of  these  general  influences, 
and,  therefore,  does  not  appear  in  the  statis- 


POPULAR  EXPLANATIONS         47 

tics.  None  the  less,  however,  it  continues 
to  exist,  and,  if  imports  were  cut  down  while 
the  general  influences  were  left  unaltered,  the 
quantity  of  unemployment  in  times  of  pros- 
perity would  be  reduced  to  an  even  lower  level 
than  that  which  it  now  attains.  This  sugges- 
tion, though  it  cannot,  of  course,  be  made 
good  by  positive  evidence,  is  also  incapable 
of  being  overthrown  by  the  statistical  argu- 
ment against  which  it  is  adduced.  That 
argument,  therefore,  like  the  direct  argument 
from  the  equivalence  of  imports  and  exports, 
fails  to  prove  that  a  restriction  of  competing 
imports  is  incapable  of  providing  more  work 
for  the  citizens  of  a  country  which  under- 
takes it. 

The  ineffectiveness  of  the  reasoning  we  have 
hitherto  been  reviewing  is  easily  explained. 
That  reasoning  fails  to  penetrate  beneath  the 
surface  of  appearance  to  the  essential  under- 
lying causes.  Economists,  however,  are  ac- 
quainted v/ith  a  more  adequate  analysis. 
Let  us  take  the  point  of  view  of  those  work- 
people in  the  country  who  are  unemployed, 
and  for  whom  it  is  contended  that  the  ex- 
clusion of  competing  imports,  the  prohibition 
of  prison-labour  and  the  reduction  of  the 
normal  hours  of  work  would  create  employ- 
ment. Why  are  these  people  unemployed? 
They  are  unemployed  because,  at  the  wage 


48  UNEMPLOYMENT 

they  ask,  there  is  no  demand  for  their  services, 
and,  unless  the  wage  they  ask  is  lowered,  they 
can  only  cease  to  be  unemployed  if  such  a 
demand  comes  into  being.  But  whence  can 
such  a  demand  come  ?  It  can  only  come 
from  the  general  income  of  the  country,  that 
is  to  say,  from  the  product  of  the  labour  and 
capital  of  the  rest  of  the  community.  It 
follows  that  the  exclusion  of  competing 
imports,  the  prohibition  of  prison-labour  and 
the  reduction  of  the  normal  hours  of  work  can 
create  employment  for  them  on  one  condition 
and  on  one  condition  only ;  namely,  that  these 
devices  succeed  in  rendering  the  labour  and 
capital  of  the  rest  of  the  community  more 
effective  in  production.  The  prohibition  of 
prison-labour  is  certain  not  to  do  this,  and 
must  necessarily  have  the  opposite  effect. 
The  reduction  of  the  normal  hours  of  work 
will  do  it  or  will  fail  to  do  it,  according  as  the 
extra  leisure  increases  the  workers'  efficiency 
more  or  less  than  in  proportion  to  the  reduc- 
tion of  hours.  The  exclusion  of  competing 
imports  will  do  it  or  will  fail  to  do  it,  according 
as  it  turns  out  that  goods,  which  business 
men  believe  they  could  not  obtain  by  direct 
manufacture  as  cheaply  as  by  exchange 
with  the  foreigner,  can  or  cannot  in  fact  be 
obtained  more  cheaply  by  this  process.  This 
is    the    economists'    solution   of   a  problem, 


POPULAR   EXPLANATIONS         49 

the  popular  discussion  of  which  has  proved 
so  unsatisfactory.  Put  into  other  terms, 
it  may  be  expressed  roughly  thus.  There 
is  no  fixed  work-fund  open  to  the  work- 
people of  any  country.  By  damming  up  a 
source  of  supply  of  some  commodity,  we  may 
increase  the  employment  available  for  the 
workers  in  a  particular  occupation,  but  we 
cannot  directly  increase  the  employment 
available  for  workers  as  a  whole.  That  result 
may,  indeed,  be  brought  about  indirectly, 
but  only  on  condition  that  our  action  has 
led  to  the  development  of  a  more  fruitful 
source  of  production — only,  in  short,  if  it  has 
not  restricted  the  output  of  established  workers 
but  has,  on  the  contrary,  augmented  it. 

From  the  critical  discussion  of  the  preceding 
pages,  it  might,  at  this  point,  be  thought  that 
a  positive  conclusion  has  emerged — the  con- 
clusion, namely,  that  the  quantity  of  un- 
employment in  any  country  is  likely  to  vary 
inversely  with  productive  efficiency  or,  what 
comes  to  substantially  the  same  thing,  with 
the  country's  real  income  per  head.  Thus, 
rich  countries  should  have  a  smaller  propor- 
tion of  unemployment  than  poor  countries,  and 
the  proportion  in  any  country  should  become 
less  as  its  wealth  becomes  greater.  Any  one 
setting  out  to  make  this  inference  will,  how- 
ever, be  brought  up  immediately  against  facts 


50  UNEMPLOYMENT 

which  must  give  him  pause.  So  far  as  the 
very  inadequate  statistical  material  at  our 
disposal  goes,  there  is  no  reason  to  suppose 
that  the  richer  countries  of  the  modern  world 
do  in  fact  suffer  less  from  unemployment  than 
the  poorer  countries ;  nor  is  there  any  reason 
to  suppose,  in  the  case  of  the  United  Kingdom, 
that  the  enormous  increase  of  wealth,  which 
has  taken  place  during  the  last  half  century, 
has  been  accompanied  by  any  appreciable 
diminution  in  the  average  percentage  of 
unemployment.  These  facts  at  first  sight 
seem  surprising.  But  they  are  not  really  so. 
Increase  in  real  income  does  not  imply  a 
diminution  in  unemployment  unconditionally. 
It  implies  an  increase  in  the  demand  for 
labour,  and,  therefore,  a  diminution  of  un- 
employment, provided  that  the  average  wage- 
rate  for  which  workpeople  stipulate  remains  the 
same.  As  a  matter  of  fact,  however,  variations 
in  real  wealth,  whether  as  between  different 
countries  over  the  same  period,  or  as  between 
different  periods  in  respect  of  the  same 
country,  tend  to  be  associated  with  corre- 
sponding variations  in  the  wage  for  which 
workpeople  stipulate.  It  is  inevitable  that 
this  should  be  so ;  for  the  mere  fact  of  greater 
or  less  national  wealth  cannot  fail  to  react 
upon  the  ideas  which  people  entertain  as  to 
what    constitutes    a    reasonable   wage;    and 


IN  A  STATIONARY  STATE        51 

it  is,  in  fact,  seen  so  to  react  in  the  varying 
wage-levels  of  different  countries  and  times. 
Hence,  we  are  not  entitled  to  conclude  that 
unemployment  is  likely  to  be  associated  with 
national  poverty.  This  chapter,  therefore, 
remains  wholly  critical,  and  gives  ground 
for  no  positive  conclusions. 


CHAPTER   V 

UNEMPLOYMENT    IN    A    STATIONARY    STATE 

Though,  as  just  stated,  the  preceding 
chapter  has  realized  no  positive  results,  it 
has  revealed  a  method.  For  it  has  made 
plain  the  theoretical  possibility  that  wage- 
rates  at  any  moment  and  in  every  part  of  the 
industrial  field  can  be  so  adjusted  to  the 
demand  for  labour  of  various  grades  that  no 
unemployment  whatever  can  exist.  In  other 
words,  it  has  shown  that  unemployment  is 
wholly  caused  by  maladjustment  between 
wage-rates  and  demand.  The  road  which 
our  investigation  must  follow  is  thus  indicated. 
It  must  assume  the  form  of  an  inquiry  into 
the  influences  by  which  various  kinds  of 
maladjustment  may  be  and  are  brought  about. 
If,  for  all  grades  of  workpeople,  the  average 


52  UNEMPLOY^IENT 

wage-rates  over  fairly  long  periods — not  the 
wage-rates  prevailing  at  particular  moments — 
were  determined  by  the  free  play  of  competi- 
tive forces,  unemployment  would  only  be 
possible  in  so  far  as  the  demand  for  the  labour 
of  the  different  grades  is  subject  to  fluctu- 
ations. Apart  from  fluctuations  there  could 
not  exist  any  unemployment  whatever.  Since, 
however,  average  wage-rates,  in  the  sense 
explained,  are  not  in  fact  everywhere  deter- 
mined by  freely  acting  competitive  forces,  the 
way  is  open  for  a  further  group  of  influences, 
by  which  unemployment  may  be  produced. 
It  is  the  purpose  of  the  present  chapter  to 
investigate  this  group  of  influences.  To  that 
end  it  is  convenient  to  eliminate  the  com- 
plications which,  in  real  life,  are  introduced  by 
the  fact  of  fluctuations,  and  to  employ  the 
conception  of  a  wholly  stationary  state,  in 
which  all  forms  of  industrial  activity  proceed 
everywhere  at  a  constant  rate.  No  firm  or 
industry  expands  and  none  decays;  the  yield 
of  the  various  crops  is  the  same  from  one  year 
to  another ;  fashions  do  not  alter ;  the  wheel  of 
life,  in  short,  spins  round  continuously  at  one 
unvarying  speed. 

The  case  first  to  be  considered  is  as  follows. 
It  sometimes  happens  that,  in  respect  of  some 
grades  of  workpeople,  the  wage-rate  over  the 
main  part  of  the  industrial  field  is  freely  ad- 


IN  A  STATIONARY  STATE        53 

justed  by  competitive  forces  so  as  to  absorb 
all  the  workpeople  assembled  there,  but  that, 
at  one  or  more  selected  points,  it  has  been 
somehow  raised  above  the  level  proper  to  free 
competition.  An  abnormally  high  rate  of  the 
kind  contemplated  may  be  established  from 
time  to  time,  or  even  for  long  periods  together, 
if,  in  any  industry  or  place,  the  workpeople 
happen  to  possess  a  particularly  strong  Trade 
Union.  No  doubt,  even  when  a  Union  has 
power  to  enforce  an  abnormally  high  rate, 
it  will  not  always  find  it  to  its  interest  to 
exercise  that  power.  For,  in  many  cases,  the 
goods  which  its  workers  help  to  make  are 
in  such  close  competition  with  other  goods, 
either  of  the  same  or  of  rival  kinds,  that  the 
addition  to  the  employer's  costs  of  production 
brought  about  by  the  enforcement  of  an 
abnormally  high  wage-rate  would  greatly 
check  the  number  of  orders  he  could  command. 
In  this  way,  it  would  lead  to  a  more  than 
proportionate  fall  in  the  demand  for  the 
workpeople's  services,  and  would  thus  bring 
about  a  diminution,  instead  of  an  increase,  in 
their  aggregate  earnings.  In  some  cases, 
however,  a  group  of  workpeople — coal-miners, 
for  example,  or  doctors — render  a  service  for 
which  no  adequate  substitute  can  be  found, 
and  for  which  people  would  rather  pay  very 
high  prices  than  cut  down  their  purchases 


54  UNEMPLOYMENT 

appreciably.  In  these  cases  the  establishment 
of  an  abnormally  high  wage-rate  carries  with  it 
an  addition  to  the  aggregate  real  earnings  of 
the  workpeople  affected,  and,  therefore,  it  is 
at  all  events  to  their  immediate  interest,  and 
possibly  even  to  their  ultimate  interest,  to 
secure  it  if  they  can.  Nor  is  Union  action 
the  only  process  through  which  the  establish- 
ment of  abnormally  high  wage-rates  can  be 
brought  about.  Such  rates  may  also  be 
enforced  by  the  pressure  of  public  opinion 
acting  through  consumers'  associations  and 
the  fair  wages  resolutions  of  municipalities, 
and  by  the  pressure  of  law  acting  through 
Wages  Boards  or  Compulsory  Arbitration. 

To  exhibit  the  effect  upon  unemployment 
of  the  establishment  of  an  abnormally  high 
wage-rate  in  any  occupation,  let  us  suppose — 
a  supposition  which,  apart  from  systems  of 
Poor  Law  relief  specially  favourable  to  par- 
ticular places,  is  generally  valid — that  the 
competitive  wage  at  the  point  affected  would 
be  equal  to  that  ruling  for  similar  work 
elsewhere,  and  that  the  actual  wage  has  been 
raised  artificially  to  10  per  cent,  above  this 
level.  Then,  as  a  first  approximation,  it 
would  appear  that  new  men  will  be  drawn 
into  the  occupation  affected  until  the  expecta- 
tion of  earnings  in  it  (this  expectation  being 
interpreted  to  mean  the  wage-rate  multiplied 


IN   A   STATIONARY   STATE         55 

by  the  chance  of  employment)  is  reduced  to 
the  level  of  the  earnings  that  prevail  outside; 
and  this  evidently  implies  the  creation  of 
10  per  cent,  unemployment.  Furthermore,  if 
we  look  at  the  facts  a  little  more  closely,  we 
perceive  that  this  first  approximation  some- 
what under-estimates  the  quantity  of  un- 
employment to  which  a  given  element  of 
artificiality  in  the  wage-rate  is  likely  to  lead. 
For,  in  estimating  the  relative  advantages  of 
different  occupations,  workpeople  are  apt 
to  pay  more  attention  to  the  money  wage, 
which  is  obvious  and  readily  known,  than  to 
the  probability  of  unemployment,  which  is 
a  much  more  obscure  matter.  This  means 
that  a  10  per  cent,  rise  in  the  wage-rate  above 
the  general  level  is  likely  to  cause  so  many  men 
to  attach  themselves  to  the  industry  that  their 
average  earnings  are  actually  lower  than  those 
obtainable  for  similar  work  elsewhere.  In 
other  words,  more  than  10  yer  cent,  of  the  men 
assembled  there  will,  on  the  average,  be  un- 
employed. There  is,  indeed,  no  reason  to 
suppose  that,  of  these  men,  any  individual 
will  be  unemployed  permanently;  but  the 
aggregate  volume  of  unemployment  will  be 
permanent,  and  it  will  be  made  up  of  separate 
items  of  unemployment,  experienced  now  by 
some  individuals  and  now  by  others. 

What  has  just  been  said  suggests  that  when, 


56  UNEMPLOYIMENT 

at  any  point  in  the  industrial  field,  an  arti- 
ficial element  is  present  in  the  wage-rate,  a 
certain  amount  of  unemployment  must  result, 
and  that  the  only  possible  "  remedy  "  is  the 
abolition  or  reduction  of  the  artificial  element. 
This  conclusion,  however,  is  not  warranted. 
For,  throughout  the  argument  developed 
above,  it  has  been  tacitly  assumed  that,  in  the 
occupation  affected,  workpeople  are  engaged 
in  such  a  way  that  an  outsider,  who  con- 
templates attaching  himself  to  the  occupation, 
may  reckon  on  a  prospect  of  employment 
approximately  as  good  as  that  of  the  men 
who  are  attached  to  it  already.  When  this 
assumption  is  valid,  the  expectation  of  earn- 
ings in  that  occupation  is  rightly  interpreted 
to  mean  the  wage-rate  multiplied  by  the 
chance  of  employment,  and  it  is,  in  point 
of  fact,  the  expectation  of  earnings  in  this 
sense,  by  which  the  number  of  men  attaching 
themselves  to  the  occupation  or  industry  is 
roughly  determined.  Things  work  out  quite 
differently,  however,  if  the  work  available 
in  the  industry  is  concentrated  rigorously 
upon  a  defined  group  of  persons  who  con- 
stitute, in  effect  if  not  in  name,  a  permanent 
staff.  Suppose,  for  example,  that  employers 
in  the  industry  engage  their  employees  on 
some  such  plan  as  that  pursued  by  the  Home 
and  Indian  Civil  Services,  choosing  men  once 


IN   A  STATIONARY   STATE         57 

and  for  all  and  appointing  them  for  a  pro- 
longed period.  In  that  case  the  fact  that  the 
wage-rate  is  artificially  high  will  not  have 
the  effect  of  assembling  as  camp-followers 
of  the  industry  any  persons  other  than  those 
for  whom  full  employment  can  be  found.  No 
doubt,  as  before,  the  mathematical  expecta- 
tion of  earnings  will  be  the  wage-rate  multi- 
plied by  the  chance  of  employment.  But 
this  expectation  will  no  longer  measure  the 
attractive  force  of  the  industry.  However  high 
the  wages  of  those  inside  may  be,  it  is  use- 
less for  any  group  of  persons  to  assemble 
outside  as  attaches,  if  it  is  quite  certain  that 
no  share  of  the  high  wages  will  ever  come  to 
them.  We  may  conclude,  therefore,  that  the 
establishment  of  an  artificially  high  wage-rate 
in  any  part  of  the  industrial  field  involves 
unemployment  only  when  the  method  of 
engagement  prevailing  there  is  of  what  may 
be  called  the  casual  type,  and  that  it  does  not 
involve  unemployment  when,  so  to  speak,  the 
concentrated  type  of  engagement  prevails. 
An  obvious  corollary  to  this  proposition  is 
that,  when  the  method  of  engagement  adopted 
is  of  an  intermediate  character,  the  mass  of 
unemployment  that  results  will  be  greater 
or  smaller,  according  as  that  method  approxi- 
mates more  closely  to  the  casual  or  to  the 
concentrated   type.     It    follows    that,    if,    in 


58  UNEMPLOYMENT 

respect  of  any  grade  of  labour,  the  aveiage 
wage-rate  is  determined  by  competitive  con- 
ditions in  the  main  part  of  the  industrial  field, 
but  is  artificially  enhanced  at  particular 
points,  a  change  at  these  points  from  a  casual 
method  of  engagement  to  a  concentrated 
method,  by  the  adoption,  for  example,  of  the 
device  of  engaging  hands  on  the  basis  of  0 
preference  list,  constitutes,  so  far,  a  real 
remedy  for  unemployment.  Such  a  list  is 
equally  effective  in  fostering  concentration, 
whether  the  names  on  it  are  set  out  in  alpha- 
betical order  or  order  of  merit  or  any  other 
order,  provided  only  that  workpeople,  as  they 
are  wanted,  are  engaged  in  strict  accordance 
with  the  position  of  their  names  on  the  list. 
Preference  lists  can  accomplish  a  good  deal 
even  when  they  are  operated  separately  by 
a  great  number  of  distinct  centres  of  demand. 
Their  effect  is  enormously  enhanced  when 
they  are  operated  by  a  single  centre  focussing 
the  demand  of  a  whole  industry  or  district. 
Thus,  a  Labour  Exchange  working  with  a 
preference  list  is  able  to  promote  concentration 
in  a  very  high  degree.  It  must  not  be  for- 
gotten, however,  that  concentration  brought 
about  in  this  way  will  only  diminish  the 
aggregate  volume  of  unemployment,  pro- 
vided that  there  exists,  outside  those  par- 
ticular points  where  wages  are  maintained  at 


IN   A   STATIONARY   STATE         59 

an  artificially  high  rate,  a  field  of  employ- 
ment for  the  grade  of  workpeople  in  question, 
in  which  the  wage-rate  is  determined  freely 
by  competitive  conditions. 

In  the  modern  world  the  establishment  of 
an  artificial  wage  confined  to  those  members 
of  a  particular  grade  of  workpeople  who  are 
assembled  at  a  limited  number  of  points  is 
probably  not  of  very  great  practical  import- 
ance. No  doubt,  in  certain  special  cases,  a 
strong  Union  may  maintain  such  a  wage  for 
a  time  in  the  occupation  to  which  it  relates. 
In  a  short  while,  however,  it  will  generally 
become  obvious  to  outsiders  that,  by  accepting 
a  little  less  than  the  Union  rate,  they  can 
secure  regular  employment  and  high  earnings  ; 
and  this  knowledge  must  constitute  a  strong 
temptation.  "  Nominally,  no  doubt,  they 
may  hold  out  for  the  stipulated  rate,  but  what 
is  to  prevent  their  contracting  to  give  excep- 
tional intensity  of  labour  in  exchange  for  it  ? 
Or  may  they  not,  as  was  so  often  suggested 
before  arbitrators  in  the  North  of  England 
iron  trade,  waive  their  claim  to  little  extra 
advantages  by  which  real  wages  are  com- 
monly enhanced  ?  There  are,  in  fact,  number- 
less subtle  ways  in  which  a  rift  in  the  Trade 
Union  dyke  may  be  effected  "^ — ways  that 
have  become  both  more  numerous  and  more 
easy    since    the    practical    disappearance    of 


60  UNEMPLOYMENT 

those  old  apprenticeship  rules  by  which  the 
entry  to  a  trade  was,  in  former  times,  restricted. 
And,  if  Trade  Unions  are  thus  unable  effect- 
ively to  establish  an  artificial  rate  in  favour 
of  workpeople  assembled  at  particular  points, 
public  opinion  or  governmental  authority  is, 
in  general,  unwilling  to  do  so.  Where  these 
forces  come  into  play  at  all,  they  hardly 
restrict  themselves  to  raising  the  wage  paid 
to  an  arbitrarily  chosen  part  of  the  work- 
people belonging  to  a  particular  grade,  but 
rather  extend  their  action  to  the  grade  as  a 
whole.  We  may  fairly  conclude,  therefore, 
that  the  case,  upon  the  discussion  of  which 
we  have  hitherto  been  engaged,  is  not,  in 
practice,  greatly  significant. 

The  second  case,  to  which  we  now  turn, 
is  of  a  quite  different  order  of  importance. 
In  all  ordinary  industries  the  workpeople 
employed  are  not  exactly  alike,  but  vary 
considerably  in  industrial  capacity.  It  is,  of 
course,  theoretically  possible  that  the  wages 
of  different  individuals  should  be  accurately 
adjusted  to  their  powers,  so  that  the  same 
rate  per  unit  of  efficiency  is  paid  to  each 
of  them.  As  a  matter  of  fact,  however, 
various  forms  of  friction  exist  in  the  economic 
world,  which  hinder  the  full  action  of  normal 
economic  forces,  and  thus  maintain  the  wage- 
rates  of  inferior  workmen  somewhat  nearer 


IN   A  STATIONARY   STATE        61 

to  those  of  good  workmen  than  their  com- 
parative efficiency  warrants.  Consequently, 
if,  as  we  may  suppose,  the  wages  of  good 
workmen  in  any  given  industry  stand  at  the 
level  indicated  by  free  competition,  the  wages 
of  inferior  workmen  are  apt  to  stand  some- 
what above  that  level,  and  are  thus  artificially 
enhanced.  Even  under  pure  piece-wages  this 
is  the  case,  for,  though  a  quick  worker  under 
this  system  is  paid  more  than  a  slow  worker 
in  proportion  to  his  extra  product,  he  is  not 
paid  more  for  the  indirect  benefit  which  he 
confers  on  the  employer  by  occupying  his 
machinery  for  a  shorter  time  on  any  given 
task.  It  is  where  the  method  of  time-wages 
prevails,  however,  that  the  element  of  dif- 
ferentiation is  most  marked.  "  In  respect, 
indeed,  of  workmen  whose  inferiority  arises 
out  of  some  definite  visible  cause,  such  as  old 
age,  adjustment  of  payment  to  efficiency,  even 
under  this  method,  appears  to  be  reasonably 
practicable.  Trade  Unions,  in  which  opera- 
tives are  paid  by  time,  often  have  special 
arrangements  permitting  men  over  sixty  to 
accept  less  than  the  standard  rate.  Such 
arrangements,  Mr.  Beveridge  states,  occur, 
for  instance,  in  the  rules  of  several  furnishing 
Trade  Unions,  and  of  others  in  the  printing, 
leather  and  building  trades.  In  one  Union,  in- 
deed, members  over  fifty-six  years  of  age  may 


62  UNEMPLOYMENT 

not  only  be  allowed,  but  may  be  compelled, 
by  their  branches  to  accept  less  than  the 
standard  rate  (so  as  to  clear  the  unem- 
ployed fund).  There  are,  however,  many 
relatively  inefficient  men  in  industry,  whose 
inefficiency  is  not  associated  with  a  definite 
objective  thing,  such  as  old  age  or  infirmity. 
With  regard  to  such  men  adjustment  is  far 
more  difficult  to  bring  about.  The  nature  of 
the  difficulties  involved  may  be  illustrated 
from  the  much-discussed  case  of  the  '  slow 
workers  '  under  the  New  Zealand  Arbitration 
Law.  In  connection  with  its  award  of 
'  minimum  '  wages,  it  is  usual  for  the  Arbitra- 
tion Court  to  provide  for  a  tribunal  to  fix  an 
'  under-rate  '  for  slow  workers.  In  the  earlier 
years  of  the  Act,  permits  to  claim  the  under- 
rate could  be  obtained  from  the  president 
or  secretary  of  the  Trade  Union  concerned. 
It  was  found,  however,  that,  especially  in  the 
case  of  slow  workers,  as  distinct  from  those 
who  are  more  obviously  afflicted  by  age, 
accident  or  infirmity,  these  officials  hesitated 
to  issue  permits.  The  new  arrangement  is 
that  the  power  of  issue  is  entrusted  to  the 
chairmen  of  local  Conciliation  Boards,  after 
hearing  the  representatives  of  the  Unions. 
In  Victoria  the  issue  is  in  the  hands  of  the 
Chief  Inspector  of  Factories,  subject  to  the 
condition    that    the     persons    working    with 


IN  A  STATIONARY  STATE        63 

licences  in  any  factory  must  not  exceed  one- 
fifth  of  the  adult  workers  who  are  employed 
there  at  the  full  minimum  rate.  The  un- 
willingness of  the  Unions  to  sanction  permits 
is,  of  course,  due  to  the  fear  that,  through 
them,  the  standard  of  output  required  of  the 
ordinary  efficient  workman  entitled  to  a  full 
wage  may  be  raised,  and  the  minimum  thus 
insidiously  lowered.  This  unwillingness  tends, 
of  course,  to  be  checked  when  the  Unions  are 
under  obligation  to  pay  large  out-of-work 
benefit  to  unemployed  members.  In  all 
circumstances,  however,  it  is  likely  to  retain 
some  force,  and  it  is,  furthermore,  strength- 
ened by  the  reluctance  of  border-line  work- 
people to  ask  for  permits,  and  of  employers 
to  obtain  a  reputation  for  employing  under- 
rate workers."  ^  Hence,  under  time-wages, 
even  when  no  excessive  rigidity  is  maintained, 
but  a  serious  effort  after  adjustment  of  wage 
to  efficiency  is  made,  it  seems  probable  that 
a  true  adjustment  will  be  much  less  nearly 
attained  than  under  piece-wages.  The  prac- 
tical difficulties,  which  impede  the  proper 
adjustment  of  payment  to  efficiency,  introduce 
an  element  of  artificiality  into  the  wage-rate 
of  second-grade  workpeople;  and  this  un- 
doubtedly tends  to  make  the  average  amount 
of  unemployment  larger  than  it  would  other- 
wise   be.     The    development    of    machinery 


64  UNEMPLOYMENT 

calculated  to  improve  adjustment,  whether 
it  take  the  form  of  the  substitution  of  piece- 
wages  for  time-wages,  or  of  a  better  organiza- 
tion of  time-wage  systems,  may,  therefore, 
rightly  be  regarded  as  a  remedy,  within 
limits,  for  unemployment. 

There  remains  a  third  case,  also  of  great 
importance.  It  happens  sometimes  that,  in 
respect  of  some  low-grade  workpeople,  the 
wage-rate  is  raised  throughout  all  the  in- 
dustries of  the  country,  whether  by  custom  or 
by  law  or  in  some  other  way,  above  the  level 
at  which,  in  the  prevailing  conditions  of 
demand,  all  the  men  or  women  in  that  grade 
are  able  to  obtain  employment.  People  have 
ideas  of  a  rough  kind  as  to  the  amount  of 
income  that  is  necessary  to  provide  a  decent 
subsistence,  and  public  opinion  resents  the 
payment  to  any  class  of  normal  workers  of  a 
wage  that  fails  to  yield  them,  when  fully 
employed,  an  income  at  least  as  large  as  this. 
Tlie  humanitarian  ideas  that  lie  behind  this 
sentiment  may  manifest  themselves  either 
through  custom  or  through  law.  In  England 
there  is  some  reason  to  believe  that  the 
105.  a  week,  which  appears  to  be  the 
customary  payment  for  many  kinds  of  wo- 
men's work,  has  been  established  in  great 
measure  by  the  play  of  ideas  of  this  kind. 
In  the  colonies  of  Victoria  and  South  Australia 


IN   A   STATIONARY   STATE         65 

the  humanitarian  ideas  have  been  clothed 
in  legal  form,  and  the  payment  in  any  regis- 
tered factory  of  a  weekly  wage  below,  in  the 
one  case  25.  6d.,  in  the  other  4*.,  has  been 
forbidden.  In  New  Zealand  this  more  or  less 
ornamental  minimum  is  increased  to  something 
of  real  practical  effect  by  a  provision  that 
nobody  may  be  employed  in  a  factory  at  less 
than  a  weekly  wage  of  55.,  plus  an  annual  in- 
crease of  not  less  than  3*.  weekly  till  a  wage  of 
205.  a  week  has  been  attained.^  These  laws  do 
not,  indeed,  extend  to  workpeople  engaged 
in  agriculture,  probably  on  account  of  the 
practical  difficulty  which  would  necessarily 
attend  attempts  to  enforce  them  in  that 
scattered  industry.  The  spirit  behind  them 
is,  however,  clearly  one  that  seeks,  so  far  as 
it  can,  to  establish  throughout  the  country 
some  sort  of  minimum  wage  for  the  lowest 
grade  of  workers,  based  upon  current  views 
concerning  what  constitutes  a  reasonable 
subsistence. 

Now,  as  was  argued  towards  the  end  of  the 
precsding  chapter,  the  wage  upon  which 
public  opinion  is  likely  to  fix  is  not  something 
absolute,  but  will  be  higher  or  lower,  according 
as  the  country  affected  is  rich  or  poor.  The 
wage-rate  below  which  it  is  held  a  discreditable 
thing  to  employ  any  servant  will  be  larger,  for 
example,  in  the  United  States  or  Great  Britain 
c 


6Q  UNEMPLOYMENT 

than  in  Russia  or  India.  This  circumstance 
has  an  important  consequence  arising  out 
of  the  fact  that,  the  richer  a  country  is,  the 
larger  the  demand  in  it  for  labour  of  every 
gi-ade  is  likely  to  be.  If,  in  any  community, 
wealth — and,  therefore  the  demand  for 
labour — were  to  increase,  while  the  accepted 
humanitarian  minimum  of  wages  remained 
the  same,  unemployment  would  necessarily 
diminish ;  and,  if  the  humanitarian  minimum 
rose  while  the  community's  wealth  remained 
the  same,  unemployment  would  necessarily 
increase.  Since,  however,  in  actual  fact, 
neither  the  amount  of  a  country's  wealth 
nor  the  humanitarian  minimum  deemed 
acceptable  in  it  is  likely  to  change  in  any 
lasting  way  unless  the  other  changes  also,  these 
results  are  more  of  hypothetical,  and  less  of 
practical,  interest  than  they  appear  to  be  at 
first  sight.  In  real  life  the  two  movements, 
if  they  occur  at  all,  are  likely  to  be  associated 
together  in  such  a  way  that  the  effect  they 
tend  to  produce  upon  the  average  volume  of 
unemployment  more  or  less  cancel  one  an- 
other. Hence,  neither  the  level  of  the 
humanitarian  minimum  nor  the  level  of 
material  wealth  can  be  regarded  without 
reserve  as  a  determinant  upon  which  the 
average  amount  of  unemployment  depends. 
Such  a  determinant  may  be  found,  however — 


IN   A   STATIONARY   STATE         67 

and  this  is  the  point  of  my  argument — in  the 
number  of  workpeople  of  the  lowest  grade, 
so  ill -endowed  by  nature  and  education  as  to 
be  incapable  of  really  efficient  work,  that  exist 
in  any  country,  as  compared  with  its  general 
wealth.  If  two  countries  are  about  equally 
rich  and  have  about  equal  populations,  but 
in  one  of  them  population  is  distributed  among 
the  different  grades  in  such  a  way  that  a 
relatively  large  number  are  to  be  found  in  the 
lowest  and  least  efficient  grade,  that  country 
is  likely  to  have  the  larger  mass  of  unemploy- 
ment. Consequently,  anything  that  tends 
to  diminish  the  proportion  of  the  working- 
classes  of  any  country  that  are  capable  of 
nothing  but  the  poorest  forms  of  unskilled 
labour  is,  generally  speaking,  a  factor  making 
for  a  diminution  in  the  average  volume  of 
unemployment. 

It  follows  from  what  has  been  said  that 
the  progress  of  education,  physical,  mental 
and  moral,  among  the  working-classes  may 
truly  be  called  a  remedy,  within  limits, 
for  unemployment.  By  developing  general 
capacity,  and  sometimes  also  special  tech- 
nical capacity  associated  with  some  particular 
industry,  education  raises  people,  who  would 
have  been  inefficient  unskilled  workers,  into 
the  ranks,  if  not  of  the  skilled,  at  least 
of  the   efficient   unskilled   workers.     In  this 


68  UNEMPLOYMENT 

way  it  diminishes  the  number  of  that  lowest 
grade  of  highly  incompetent  persons,  for 
whose  services,  at  the  wage  which  considera- 
tions of  humanity  enforce,  the  demand  falls 
short  of  the  supply.  Nor,  it  may  be  added 
incidentally,  is  this  the  whole  effect.  For 
the  development  of  new  skilled  men,  meaning, 
as  it  does,  an  addition  to  the  productive 
power,  and  so  to  the  real  income  of  the  nation, 
indirectly  raises  the  demand  for  the  services 
of  the  lowest  grade  of  workers.  From  the 
present  point  of  view,  however,  that  result 
should  not  be  stressed,  since,  as  we  have  seen, 
an  increase  in  real  income  is  likely  to  be 
accompanied  by  a  corresponding  increase  in 
the  humanitarian  minimum  wage,  and  thus 
to  have  its  beneficial  effect  upon  unemploy- 
ment cancelled.  The  reduction  in  the  number 
of  the  lowest  grade  of  workers,  to  which 
education  leads,  is,  however,  an  influence  not 
thus  cancelled,  and,  consequently,  a  true 
element  making  for  a  reduction  in  the  average 
volume  of  unemployment. 

Now,  of  course,  it  is  not  practicable  here 
to  say  anything  in  detail  concerning  the 
organization  of  education  in  the  elementary 
schools  of  the  country.  A  scarcely  less  im- 
portant influence,  however,  in  determining 
whether  a  boy  is  to  become  a  low-grade 
unskilled  workman  or  to  attain  to  something 


IN   A  STATIONARY   STATE         69 

better,  is  exercised  by  the  general  character 
of  the  hfe  he  leads  in  the  first  few  years 
after  he  has  passed  school  age.  At  that 
period  of  his  career  the  choice  is  open  be- 
tween occupations  which  at  the  moment 
yield  a  fairly  high  wage  but  afford  no  train- 
ing, or,  maybe,  even  injure  his  quality,  and 
occupations  which  yield  little  return  at  the 
moment  but  store  up  capacity  for  after  years. 
The  occupations  yielding  considerable  imme- 
diate return  are  of  two  principal  kinds.  On 
the  one  side  are  various  types  of  work  which, 
though  skilled,  are  of  such  a  kind  that  they 
are  only  possible  for  boys  as  boys,  and  do  not, 
therefore,  afford  preparation  for  any  form  of 
man's  work,  such,  for  example,  as  those 
operations  in  the  boot  and  shoe  trade  in  which 
the  small  fingers  of  children  give  them  a 
special  advantage.  On  the  other  side  are 
various  types  of  unskilled  children's  work 
at  present  in  large  demand.  The  Royal 
Commission  on  the  Poor  Laws  reports  that 
in  the  large  cities  of  this  country,  and  notably 
in  London,  there  are  "  innumerable  openings 
for  errand  boys,  milk  boys,  office  and  shop 
boys,  van,  lorry  and  tramcar  boys,  street- 
sellers,  etc."  *  Neither  of  these  two  types  of 
work  can  claim  to  be,  in  any  substantial 
sense,  educative.  Of  the  specialized  type, 
jVIt.  Jackson,  in  his  Report  to  the  Poor  Law 


70  UNEMPLOYMENT 

Commission,  writes  :  "  The  injury  done  to 
these  boys  is  not  that  they  are  compelled  as 
men  to  devote  themselves  to  unskilled  labour, 
but  that,  from  the  more  or  less  specialized 
nature  of  the  work  which  has  employed  their 
boyhood,  they  are  unfitted  to  become  good 
low-skilled  labourers."  The  various  types  of 
unskilled  labour  open  to  boys  are  probably 
even  worse  from  an  educational  point  of  view. 
There  is  reason  to  suppose  that  many  of  them 
not  merely  fail  to  train,  but  positively  un- 
train,  the  boys  subjected  to  them.  The 
essential  ground  of  this  is  well  put  by  Mr. 
Jackson  :  "  Mere  skill  of  hand  or  eye  is  not 
everything.  It  is  character  and  sense  of 
responsibility  which  requires  to  be  fostered, 
and  not  only  morals,  but  grit,  stamina,  mental 
energy,  steadiness,  toughness  of  fibre,  endur- 
ance, must  be  trained  and  developed." 
These  general  qualities,  however,  can  ill 
v/ithstand  the  conditions,  if  these  are  un- 
alleviated,  of  many  forms  of  unskilled  boy- 
labour.  IVIr.  Jackson  reports  the  view  that 
"  the  occupation  of  van-boys  is  very  calcu- 
lated to  destroy  industry,"  and  adds  that 
"  opinion  is  practically  unanimous  that  street- 
selling  is  most  demoralizing  to  children. 
It  is  not  so  much  a  question  of  a  skilled  trade 
not  being  taught  as  of  work  which  is  deterio- 
rating absorbing  the  years  of  the  boy's  life 


IN   A  STATIONARY   STATE         71 

when  he  most  needs  educational  experience 
in  the  widest  sense."  ^  No  doubt,  attempts 
to  prove  the  deteriorating  consequences  of 
any  type  of  employment  by  comparing  the 
boys  engaged  in  it,  in  respect  of  character  or 
after  Hfe,  with  boys  in  general,  are  rendered 
unsatisfactory  by  the  fact  that  bad  occupa- 
tions are  generally  followed  by  boys  who  are 
initially  of  a  low  grade.  This  important 
point  is  made  by  Mr.  Sidney  Buxton  in  regard 
to  telegraph  boys.  He  rightly  argues  that 
it  is  not  fair  to  condemn  the  telegraph  mes- 
senger service  by  comparing  the  after-life 
of  telegraph  boys  with  that  of  boys  entering 
skilled  trades,  because  most  of  those  who 
become  telegraph  boys  would  not,  in  any  case, 
have  entered  such  trades.  He  obtained  com- 
parative information  concerning  the  after- 
life of  telegraph  boys  and  of  their  brothers, 
and  found  that,  in  some  towns  the  telegraph 
boy,  and  in  others  the  brother  seemed  to 
succeed  better.^  The  justice  of  this  critical 
point  of  view  in  its  application  to  street -trading 
is  recognized  by  the  Committee  on  the  Em- 
ployment of  Children  Act  1903  :  "  It  would  be 
going  too  far  to  place  on  their  occupation  the 
whole  of  the  responsibility  for  the  shiftless  or 
criminal  lives  into  which  this  class  of  street- 
trader  often  drifts ;  drawn  from  the  poorest 
class,  with  home  influences  unfavourable,  and 


72  UNEMPLOYMENT 

living  mostly  in  the  streets,  the  boy  is  handi- 
capped at  the  start,  and  has  few  chances  of 
becoming  anything  else." '  Though,  how- 
ever, statistical  argument  on  this  matter  must 
be  looked  at  cautiously,  yet,  in  respect  of 
many  of  the  unskilled  occupations  followed 
by  boys,  general  experience  seems  clearly 
to  establish  the  existence,  not  merely  of  a 
non-educative,  but  actually  of  a  deteriorating 
influence.  These  various  wage-paying  and 
non-educative  openings  are  powerful  rivals 
to  industrial  apprenticeship,  where  that  is 
still  practicable,  and  to  unremunerative  work 
at  evening  classes,  technical  institutes  and 
so  forth.  Partly  from  ignorance  and  partly 
from  poverty,  many  parents  are  led  to  choose 
for  their  children,  or  to  permit  their  children 
to  choose  for  themselves,  the  course  which  is 
immediately  more  attractive,  instead  of  that 
which  is  ultimately  more  advantageous.  Here, 
then,  is  an  opportunity  for  pressure  and 
encouragement  at  the  hands  of  those  of 
greater  foresight  and  greater  wealth  who  stand 
in  a  position  of  authority.  Philanthropic 
employers,  like  Messrs.  Cadbury  Bros.,  Ltd. 
— and,  as,  since  the  recent  reforms,  we  are 
entitled  to  add,  the  British  Post  Office  ^ — 
have  already  recognized  their  obligation  in 
this  matter.  In  the  Bournville  works  ela- 
borate  provision   is    made   for   the   physical 


IN   A   STATIONARY   STATE         73 

and  mental  training  of  the  children  employed, 
and  it  is  a  condition  of  employment  that 
all  employees  under  age  shall  avail  them- 
selves of  this  provision.  It  is  open  to  the 
State  to  second  these  efforts  by  furnishing 
educational  facilities  for  young  persons  at  the 
charge,  in  part,  of  national  funds,  and  by 
forbidding  hours  of  labour  so  long,  and  forms 
of  occupation  so  injurious,  as  practically  to 
prevent  those  in  whose  interest  the  facilities 
are  established  from  deriving  benefit  from 
them.  There  is  evidence  that  opinion  is 
coming  to  favour  a  policy  of  this  kind. 
Principal  Sadler  holds  that  "  employers,  in- 
cluding Government  departments,  manu- 
facturers, commercial  firms,  retail  tradesmen, 
and  employers  of  young  domestic  servants 
should  be  placed  under  statutory  obligation 
to  allow  young  persons  of  less  than  seventeen 
years  of  age,  who  are  in  their  employment,  to 
attend  courses  of  physical,  technical  and 
general  instruction  for  four  hours  a  week,  at 
any  rate  during  the  winter  months,  at  times 
of  day  when  the  pupils  are  not  too  tired  to 
profit  by  the  teaching."  And  he  would 
couple  with  this  regulation  an  enforced  "  re- 
duction in  the  hours  of  juvenile  and  adolescent 
labour  where  those  are  now  excessive."  ^ 
The  late  Canon  Barnett  desired  the  passing 
of  an  Act  of  Parliament,  "  which  will  compel 
c  2 


74  UNEMPLOYMENT 

employers  to  get  for  every  young  person  in 
their  employ  a  weekly  certiticate  of  attendance 
at  these  evening  classes  in  each  week."^° 
Finally,  the  Minority  of  the  Poor  Law  Com- 
missioners conclude  :  "  We  think  that  there 
would  be  many  advantages  in  such  an  amend- 
ment of  the  Factory  Acts  and  the  Education 
Acts  as  would  make  it  illegal  for  any  employer 
to  employ  any  boy  at  all  in  any  occupation 
whatsoever  below  the  age  of  fifteen;  or  any 
youth  under  eighteen  for  more  than  thirty 
hours  per  week;  coupled  with  an  obligation 
on  the  employer,  as  a  condition  of  being  per- 
mitted to  make  use  of  the  immature  in  in- 
dustry, to  see  that  the  youth  between  fifteen 
and  eighteen  had  his  name  on  the  roll  of  some 
suitable  public  institute  giving  physical  train- 
ing and  technical  education ;  and  an  obliga- 
tion on  the  boy  to  attend  such  an  institute  for 
not  less  than  thirty  hours  per  week."  ^^  In 
Germany  this  point  has  been  taken  up  nearly 
two  decades  ago.  "  The  Imperial  Law  on  the 
Regulation  of  Industry  of  1891  decreed  that 
the  masters  in  any  branch  of  industry  were 
bound  to  allow  their  workers  under  the  age 
of  eighteen  to  attend  an  officially  recognized 
continuation  school  .  .  .  for  the  time  fixed 
as  necessary  by  the  authorities.  The  local 
Council  might  make  such  attendance  obliga- 
tory for  all  male  workers  under  the  age  of 


PLASTICITY   OF   WAGE-RATES     75 

eighteen."  ^^  That  pressure  of  this  kind  would 
react  generally  to  the  advantage  of  the  com- 
munity is,  I  think,  beyond  dispute.  In  this 
volume,  however,  we  are  not  concerned  to 
discuss  advantages  of  a  general  character. 
The  point  which  here  needs  emphasis  is  that 
the  adoption  of  such  a  policy  might  fairly  be 
reckoned  as  an  influence  of  some  importance 
making  for  a  diminution  in  the  average  volume 
of  unemployment. 


CHAPTER   VI 

THE    PLASTICITY    OF    WAGE-RATES 

Hitherto  attention  has  been  confined  to  a 
class  of  maladjustment  between  wage-rates 
and  the  demand  for  labour  that  might  arise 
even  in  a  stationary  state.  That  class  of 
maladjustment  we  now  leave  on  one  side.  In 
the  actual  world  there  is  still  scope  for  much 
additional  maladjustment,  consequent  upon 
the  obvious  fact  that  the  demand  for  labour, 
in  every  part  of  the  industrial  field,  is  exposed 
to  fluctuations.  For  the  purpose  of  the 
present  chapter  we  take  the  existence  of  these 
fluctuations  for  granted,  and  suppose  that 
their   magnitude   and   general   character   are 


76  UNEMPLOYMENT 

given.  There  is  no  necessity  that  such  fluctua- 
tions should  involve  unemployment  :  for 
the  wage-rate  that  workpeople  ask  for  at 
every  point  in  the  industrial  field  might  so 
vary  in  response  to  variations  of  demand  that 
there  were  never  anywhere  more  workpeople 
than  employers  were  willing  to  engage.  A 
wage-rate  varying  in  this  way  I  shall  call 
perfectly  plastic.  In  real  life,  of  course, 
everybody  knows  that  no  wage-rates  are 
perfectly  plastic  in  the  above  sense,  and  that, 
as  a  consequence,  fluctuations  do  involve 
unemployment.  It  is  equally  well-known, 
however,  that  neither  are  wage-rates,  as  a 
rule,  wholly  lacking  in  plasticity.  On  the 
contrary,  an  increase  or  decrease  in  the  general 
demand  for  labour  is  always  likely  to  bring 
about  some  increase  or  decrease  in  the  wage- 
rate  which  workmen  will  accept.  The  in- 
ference, therefore,  immediately  suggests  itself 
that,  given  the  magnitude  of  industrial 
fluctuations,  the  amount  of  unemployment 
which  they  involve  will  be  greater  or  smaller, 
according  as  the  plasticity  of  wage-rates 
is  smaller  or  greater.  This  inference  would 
be  obviously  correct,  if  all  the  fluctuations 
that  occur  in  the  industrial  field  were  uniform 
throughout  all  parts  of  it,  or  if,  granted  that 
they  are  not  all  thus  uniform,  movement  of 
labour  between  different  parts  was  absolutely 


PLASTICITY   OF   WAGE-RATES     77 

precluded.  In  the  circumstances  that  actually 
exist,  where  different  parts  of  industry  fluc- 
tuate relatively  to  one  another,  and  where  the 
mobility  of  labour  (that  is  to  say,  roughly, 
the  ease  with  which  labour  moves  from  one 
place  or  occupation  to  another  under  the 
influence  of  economic  inducements)  is  im- 
perfect, the  issue  is  not  so  plain  :  for  it  is 
possible  that  a  certain  rigidity  of  wage-rates 
in  the  face  of  local  fluctuations  might  so 
stimulate  people  to  organize  the  mobility  of 
labour  that,  in  the  long  run,  less  unemploy- 
ment would  prevail  than  might  rightly  have 
been  expected,  had  a  greater  plasticity  of 
wage-rates  been  allowed.  If,  however,  we 
assume,  as  now  perhaps  we  reasonably  may, 
that  popular  interest  in  the  organization  of 
mobility  will,  of  itself,  push  forward  that 
organization,  by  way  of  Labour  Exchanges 
and  so  forth,  with  such  vigour  that  no  scope 
is  left  for  further  stimulus,  this  qualifying 
consideration  may  safely  be  left  aside.  We 
are  then  entitled  to  the  general  conclusion  that 
unemployment  is  likely  to  be  greater,  the  more 
rigidly  wage-rates  are  maintained  in  the  face 
of  variations  in  the  demand  for  labour. 

An  interesting  practical  illustration  of  this 
conclusion  is  afforded  by  some  parts  of  the 
discussion,  which  has  recently  taken  place, 
concerning     the     comparative     amount     of 


78  UNEMPLOYMENT 

unemployment  normally  prevalent  in  England 
and  Germany  respectively.  There  are  no  sta- 
tistics in  regard  to  these  countries  collected 
upon  bases  sufficiently  similar  to  warrant  any 
decided  judgment  as  to  which  of  them  suffers 
the  more  severely.  It  has,  however,  proved 
possible  to  disentangle  certain  influences, 
some  on  one  side  and  some  on  the  other,  by 
which  the  comparative  severity  of  unemploy- 
ment in  the  two  countries  is  presumably 
affected.  In  the  course  of  an  analysis  of 
these  influences,  a  recent  report  of  the  British 
Board  of  Trade  makes  the  following  state- 
ment. "  Trade  Union  standard  rates  of 
wages  do  not  prevail  in  Germany  to  the  same 
extent  as  in  Great  Britain.  In  consequence, 
workpeople  have  greater  liberty  in  accepting 
work  at  wages  lower  than  those  at  which 
they  have  previously  been  employed,  espe- 
cially in  bad  times.  A  more  speedy  return  to 
employment  of  some  kind,  and  a  consequent 
reduction  in  the  percentage  of  Trade  Union 
members  unemployed  results  from  this."  1  .  .  . 
In  this  compa,rison,  there  is  a  simple  and, 
subject  to  some  statistical  uncertainties,  a 
convincing  object  lesson  of  the  advantages  of 
plasticity  of  wage-rates — and  plasticity,  be  it 
noted,  means,  not  merely  liability  to  vary,  but 
liability  to  vary  in  accordance  with  varia- 
tions in  the  demand  for  labour — as  an  instru- 


PLASTICITY   OF   WAGE-RATES     79 

ment   for   reducing  the  average    volume    of 
unemployment . 

In  examining  the  causes,  by  which  the  degree 
of  plasticity  present  in  any  particular  wage- 
system  is  determined,  we  may  conveniently 
consider  first  an  important  general  circum- 
stance, by  which  plasticity  is  everywhere 
impeded.  This  circumstance  is,  to  put  it 
broadly,  that  the  purchasing  power  of  the 
standard  money  employed  in  all  modern 
States  is  variable.  By  this  I  do  not,  of  course, 
mean  merely  that  the  prices  of  particular 
articles  fluctuate  from  time  to  time.  Such 
fluctuations  in  individual  prices  are  a  necessary 
result  of  fluctuations  of  industry.  I  mean  that 
the  prices  of  things  in  general  fluctuate  from 
time  to  time ;  that,  not  only  do  the  values  of 
wheat  and  iron  vary  relatively  to  one  another, 
but  that  the  value  of  the  general  mass  of 
purchasable  goods  varies  relatively  to  the 
sovereign.  A  sovereign,  in  short,  at  different 
times  gives  command  over  different  quantities 
of  things  in  general.  Now,  if  this  circumstance 
were  fully  understood  by  everybody,  it  would 
have  no  significance  in  reference  to  the  present 
problem.  As  a  matter  of  fact,  however,  it 
is  not  understood  by  the  great  majority  of 
people.  As  the  saying  is,  they  think  in  terms 
of  gold  and  silver,  not  in  terms  of  what  gold 
and  silver  will  buy.     The  result — ^apart  from 


80  UNEMPLOYMENT 

certain  complicating  consequences  of  economic 
friction,  which  need  not  be  considered  here — 
is  easily  seen.  When  the  general  purchasing 
power  of  money  rises,  in  consequence,  say, 
of  a  scarcity  in  the  supply  of  gold,  the  demand 
for  labour,  expressed  in  terms  of  money,  neces- 
sarily falls  in  all  industries  except  those  in 
which  there  has  been  a  simultaneous,  and  not 
less  than  equivalent,  expansion  of  the  real 
demand  expressed  in  terms  of  commodities. 
The  point  can  be  made  clear,  if  we  concentrate 
attention  upon  some  industry  in  which  the 
real  demand  for  labour,  expressed  in  terms  of 
commodities,  has,  in  fact,  remained  constant. 
In  this  case,  whereas,  before  the  change, 
employers  were  willing,  let  us  suppose,  to 
engage  10,000  men  at  a  wage  of  305.  per  week, 
they  are  now  willing  to  engage  that  number 
at  a  wage  of  285.,  these  28*.  giving  command 
over  exactly  the  same  quantity  of  com- 
modities and  services  as  305.  gave  command 
over  before.  If  the  workpeople  affected  fully 
understood  what  had  happened,  they  would 
know  that  a  wage  of  285.,  now  that  prices  are 
reduced,  is  exactly  equivalent  to  a  wage  of 
305.  before  they  were  reduced,  and,  conse- 
quently, unless  some  ground  could  be  shown 
for  claiming  an  increase  in  real  wages,  there 
would  be  no  resistance  to  the  proposed  reduc- 
tion in  the  nominal  rate.     But  the  workpeople 


PLASTICITY   OF   WAGE-RATES     81 

do  not  understand  what  has  happened.  Think- 
ing— as  most  other  people  also  think — in 
terms  of  money,  they  do  not  look  through  the 
nominal  wage  to  the  real  wage  which  it 
symbolizes,  but  are  convinced  that  a  drop 
from  305.  to  285.  necessarily  means  a  worsening 
in  their  economic  situation.  Consequently, 
they  resist  the  reduction,  and  their  resistance 
causes  the  wage-rate  to  fail  from  time  to  time 
properly  to  adjust  itself  to  the  demand  for 
labour.  In  other  words,  variability  in  the 
purchasing  power  of  the  standard  is,  in  view 
of  the  universal  tendency  to  think  in  terms  of 
money,  a  potent  influence  hampering  the 
plasticity  of  wage-rates.  In  the  eighth  chap- 
ter it  will  appear  that  this  variability  also 
operates  as  an  influence  tending  to  promote 
fluctuations  in  the  real  demand  for  labour, 
and  some  account  will  be  given,  in  that  con- 
nection, of  proposals  that  have  been  made  with 
the  object  of  rendering  the  standard  stable. 
For  the  present,  therefore,  the  matter  need  not 
be  pursued  further,  and  we  may  pass  to 
another  influence  making  against  plasticity, 
which  would  still  be  present  even  in  a  world — 
if  such  were  conceivable — possessed  of  an 
absolutely  stable  standard. 

This  influence  is  easily  described.  Both 
employers  and  employed  are  impelled  to 
strive  after  greater  rigidity  than  is  directly 


82  UNEMPLOYMENT 

to  their  advantage,  on  account  of  the  in- 
harmonious character  of  their  mutual  rela- 
tions. Thus,  workpeoples'  associations  fight 
against  attempts  to  lower  the  wage-rate  in 
bad  times,  largely  because  they  fear  that,  if 
it  is  once  lowered,  great  difficulty  will  be 
found  in  raising  it  again ;  and  employers  fight 
against  attempts  to  raise  it  as  times  improve, 
largely  from  fear  of  encountering  a  like 
difficulty  in  the  way  of  subsequently  lowering 
it.  The  extent  to  which  this  influence  oper- 
ates depends,  of  course,  in  the  main  upon  the 
attitude  of  mind  which  employers  and  em- 
ployed entertain  towards  each  other.  When  a 
spirit  of  hostility  and  distrust  prevails,  ap- 
propriate wage-fluctuations  can  only  appear 
rarely  and  through  much  tribulation.  When, 
however,  there  is  a  spirit  of  greater  tolerance, 
the  strength  of  the  influence  we  are  here  de- 
scribing is,  in  great  measure,  broken. 

This  consideration  leads  on  to  a  further 
aspect  of  our  problem.  When  the  relations 
between  employers  and  employed  are  reason- 
ably satisfactory,  the  essential  spirit  of  their 
harmony  may  manifest  itself  in  some  mechan- 
ism of  wage-adjustment,  by  means  of  which 
the  influences  hostile  to  plasticity  can,  in 
part,  be  overcome.  Mechanism  of  this  type 
is,  as  a  general  rule,  part  and  parcel  of  a 
larger  mechanism  designed  primarily  to  facili- 


PLASTICITY   OF   WAGE-RATES     83 

tate  the  adjustment  of  differences  between 
employers  and  employed.  This  aspect  of  the 
matter  will  be  discussed  in  the  ninth  chapter. 
Here  it  is  sufficient  to  observe  that  organiza- 
tions of  employers  and  employed  frequently 
set  up — sometimes  to  meet  a  temporary 
emergency,  but  more  frequently  in  a  permanent 
form — Boards  consisting  of  representatives 
drawn  in  equal  numbers  from  both  sides,  and 
undertaking,  among  other  work,  either  with 
or  without  the  assistance  of  an  arbitrator,  the 
periodic  revision  of  the  general  wage-rate 
current  in  the  industry.  By  the  operation 
of  this  machinery  there  is  evolved  a  succes- 
sion of  industrial  agreements,  through  whose 
agency  attempts  are  made  to  adjust  wage- 
rates  to  the  changes  that  occur  from  time  to 
time  in  the  demand  for  labour.  The  fact  that 
the  machinery  is  available,  and  is  likely  to 
remain  available  in  the  future,  lessens  the 
hesitation  of  either  side  to  make  appropriate 
concessions  when  occasion  for  them  arises, 
because  it  affords  some  guarantee  that,  when 
the  occasion  passes,  resistance  to  the  with- 
drawal of  the  concessions  will  not  be  pressed 
unduly.  The  machinery  is,  however,  often 
cumbrous  and  difficult  to  work.  In  so  far  as 
it  involves  arbitration  by  a  neutral  chair- 
man, it  places  a  strain  upon  loyalty  and  self- 
discipline;   for  it  may  involve  the  acceptance 


84  UNEMPLOYMENT 

at  another's  hands  of  a  bitterly  resented  award. 
Consequently,  conditions  will  rarely  be  found, 
in  which  it  can  be  safely  invoked  otherwise 
than  at  fairly  long  intervals.  Each  agree- 
ment, therefore,  is  likely  to  be  made  for  a 
term  of  two  or  three,  it  may  be  even  of  five, 
years,  and,  only  after  that  original  period  has 
lapsed,  to  be  subject  to  short  notice  on  either 
side.  It  follows  that,  when  agreements  are 
in  the  form  of  awards  of  definite  single 
standard  rates,  wages  under  them  do,  indeed, 
become  plastic  for  a  while  every  two  or  three 
years,  but,  as  against  changes  of  demand  for 
labour  that  occur  during  the  original  period 
of  any  agreement,  they  are  absolutely  rigid. 

As  a  partial  remedy  for  this  state  of  affairs 
the  device  is  sometimes  adopted — in  England 
it  is  specially  common  in  various  departments 
of  metal  manufacture — of  substituting  for 
agreements  fixing  single  standard  rates  more 
complex  agreements  setting  up  sliding-scales. 
In  some  discussions  of  these  arrangements  it 
is,  indeed,  tacitly  assumed  that  a  scale,  once 
introduced,  is  intended  to  regulate  wages  in 
the  industry  to  which  it  is  applied  for  the 
whole  of  future  time.  ^Vhen  this  assumption 
is  made,  it  is  easy  to  show  that  broad  changes 
in  methods  of  manufacture  and  so  forth  are 
almost  certain  eventually  to  render  the  wage- 
rates  established  under  the  scale  ridiculously 


PLASTICITY   OF   WAGE-RATES     85 

out  of  accord  with  current  economic  conditions. 
Thus,  jMt.  and  IVIrs.  Webb  urge  against  scales 
in  general  :  "  There  seems  no  valid  reason 
why  the  wage-earner  should  voluntarily  put 
himself  in  a  position  in  which  any  improve- 
ment of  productive  methods,  any  cheapening 
of  the  cost  of  carriage,  any  advance  in  com- 
mercial organization,  any  lessening  of  the 
risks  of  business,  any  lightening  of  the  taxes 
or  other  burdens  upon  industry,  and  any  fall 
in  the  rate  of  interest — all  of  which  are  calcu- 
lated to  lower  price — should  automatically 
cause  a  shrinking  of  his  wage."  ^  This  type 
of  criticism,  valid  enough  against  scale  arrange- 
ments designed  to  be  everlasting,  has  no  force 
against  such  arrangements  conceived,  as  they 
should  be  conceived,  and  are  in  practice  framed, 
as  a  particular  kind  of  industrial  agreement, 
subject  to  periodic  revision,  and  differing  from 
simpler  agreements  only  in  that,  during  the 
two  or  three  years  for  which  they  remain 
unchanged,  the  wage-rate,  instead  of  being 
absolutely  fixed,  is  allowed  to  vary  about  a 
fixed  standard  every  two  or  three  months. 

The  general  principle  of  the  sliding  scale 
so  conceived  is  as  follows.  For  the  period 
over  which  industrial  agreements  embodying 
it  are  to  run,  there  is  determined  a  certain 
standard  wage,  to  be  paid  when  the  price  of 
the  product,   which  the  industry  concerned 


86  UNEMPLOYMENT 

produces,  stands  at  a  certain  level.  When 
the  price  diverges  from  this  standard  price, 
or,  sometimes,  when  it  diverges  from  it  by 
more  than  a  certain  agreed  amount,  wages 
also  vary  from  the  standard  wage  :  and  a 
scale  is  drawn  up  indicating  the  amount  of 
change  in  the  wage-rate  which  shall  follow 
different  amounts  of  change  in  the  price  of 
the  product.  This  is  the  simplest  form  of 
scale.  In  some  cases  the  index,  in  conformity 
with  which  the  wage-rate  moves,  is  not  the 
mere  price  of  the  product,  but  this  price  minus 
the  price  of  the  raw  material  employed  in  the 
manufacture  of  a  unit  of  product.  In  some 
cases,  again,  provision  is  made  for  a  minimum 
rate  below  which  the  wage  shall  not  be  allowed 
to  fall  whatever  happens  to  the  price,  and, 
in  yet  other  cases,  provision  is  made  for  both 
a  minimum  and  a  maximum  wage.  Indeed, 
the  detailed  structure  of  sliding-scale  arrange- 
ments varies  greatly  in  different  circumstances. 
The  main  idea  underlying  all  of  them  is, 
however,  the  same.  It  is  to  contrive  some 
index,  whether  it  be  price  of  product  or  some- 
thing more  complicated,  variations  of  which 
are  likely  to  correspond  more  or  less  with 
variations  in  the  demand  for  labour  in  the 
industry  concerned.  Wlien  this  has  been 
done,  it  is  possible,  by  associating  variations 
in  wages  immediately  with  variations  in  that 


PLASTICITY   OF   WAGE-RATES     87 

index,  to  associate  them  ultimately  with  varia- 
tions in  the  demand  for  labour.  The  extent 
of  the  wage-change  that  is  balanced  against 
a  given  change  in  the  price  of  the  product, 
or  whatever  the  index  selected  may  be,  is,  of 
course,  different  in  different  sliding-scale 
agreements.  It  is  great  or  small,  according, 
among  other  things,  as  the  change  in  the 
demand  for  labour,  which  experience  shows 
to  be  associated  with  a  given  change  in  the 
index,  is  great  or  small.  The  following 
description  of  the  agreement,  by  which  the 
wages  of  blast-furnacemen  in  the  Cleveland 
district  are  at  present  regulated,  is  taken 
from  the  Report  on  Collective  Agreements 
published  by  the  Board  of  Trade  in  1910, 
and  may  serve  to  indicate  the  general  nature 
of  this  class  of  arrangement.  The  agreement 
in  question  was  entered  into  in  December 
1897,  and  was  to  run  till  September  30,  1900, 
and  thereafter  subject  to  three  months'  notice 
from  either  side.  It  "  provides  for  the 
ascertainment  once  in  three  months  by 
accountants  (one  of  whom  is  selected  and 
remunerated  by  the  ironmasters,  and  another 
by  the  blast-furnacemen)  of  the  net  average 
invoice  price  of  No.  3  Cleveland  pig  iron, 
during  the  preceding  three  months  from  the 
books  of  seven  specified  firms.  When  this 
selling  price  is  34*.  and  not  over  345.  2'4<0d. 


88  UNEMPLOYMENT 

per  ton,  the  wages  payable  are  the  standard 
rates.  If  the  selHng  price  falls  below  345.  per 
ton,  then  for  every  change  in  price  downwards 
of  2-40d.  per  ton,  the  wages  of  the  blast- 
furnacemen  suffer  a  reduction  of  0*25  per 
cent,  on  standard  wages.  If,  on  the  other 
hand,  the  selling  price  exceeds  34*.  per  ton, 
then,  for  every  2- 40c?.  per  ton  by  which  the 
selling  price  exceeds  345.,  the  wages  of  the 
workpeople  are  increased  by  0*25  per  cent, 
on  the  standard,  except  when  the  selling  price 
is  above  40*.  and  below  42*  per  ton.  If  the 
selling  price  is  from  40*.  up  to  4l5.  lO'SOd. 
per  ton,  the  arrangement  is  that,  for  every 
advance  of  V20d.  per  ton  in  the  selling  price, 
the  wages  of  the  blast -furnacemen  shall  be 
advanced  by  0*25  per  cent,  on  the  standard. 
After  the  price  of  425.  per  ton  has  been 
reached,  the  normal  correspondence  between 
wages  and  prices — 0-25  per  cent,  increase 
in  wages  for  2*40d.  increase  in  price — is 
resumed."  ® 

Now,  of  course,  it  is  not  to  be  expected  that 
any  automatic  arrangement  can  succeed  in 
securing  a  continuous  and  perfect  adjustment 
of  the  wage-rate  to  changing  conditions  of 
demand.  The  objection,  which  immediately 
suggests  itself,  that  the  price  of  the  product 
ruling  at  the  time,  and  not  that  ruling  three 
months  before,  ought  to  be  taken  as  the  index 


PLASTICITY   OF   WAGE-RATES     89 

of  demand  can,  indeed,  be  satisfactorily  met ; 
for  a  certain  interval  is  required  before  changes 
in  the  price  of  a  product  react  on  the  activity 
of  the  industry  engaged  in  producing  it. 
There  are,  however,  other  strong  objections. 
For  variations  in  the  price  of  a  finished  com- 
modity, or  even  variations  in  the  difference 
between  that  price  and  the  price  of  the  most 
notable  raw  materials  used  in  the  process 
of  manufacture,  really  afford  a  very  imper- 
fect index  of  variations  in  the  demand  for 
labour  in  the  industry  affected.  It  is  true 
that,  if  the  price  of  every  sort  of  raw  material 
employed,  and  of  every  kind  of  co-operating 
labour,  could  be  taken  into  account  in  the 
construction  of  the  index,  many  sources  of 
imperfection  would  be  removed.  But  life 
is  short  and  the  patience  of  accountants,  no 
less  than  the  range  of  information  available, 
is  limited.  No  doubt,  in  an  industry  such  as 
coal-mining,  where  the  demand  for  hewer's 
labour  depends  mainly  on  the  price  of  coal  at 
the  pit  mouth,  and  is  little  affected  by  the  cost 
either  of  raw  material  or  of  complementary 
forms  of  labour  required  in  conjunction  with 
hewer's  work,  the  necessary  imperfections  of 
a  price  index  are  relatively  slight.  Every- 
where, however,  such  imperfections  must 
exist,  and,  in  complex  industries,  where  the 
part  played  by  any  particular  class  of  labour 


90  UNEMPLOYIMENT 

in  the  building  up  of  the  product,  in  whose 
manufacture  it  assists,  is  small,  they  are  likely 
to  be  of  dominating  importance.  This  point 
must  be  admitted,  and  indeed,  should  be 
strongly  urged.  On  the  other  side,  however, 
it  should  be  urged  with  no  less  emphasis  that, 
however  imperfectly  a  sliding  scale  may  enable 
wages  to  adjust  themselves  to  variations  in 
the  demand  for  labour  over  the  period  of  its 
currency,  and  however  many  and  important 
the  influences  affecting  demand  of  which  its 
automatic  formula  fails  to  take  account,  it  is, 
nevertheless,  practically  certain,  if  framed  with 
any  measure  of  intelligence,  to  enable  wages 
to  be  adjusted  to  variations  of  demand  more 
adequately  than  they  would  have  been  under 
an  industrial  agreement  lasting  for  the  same 
period  and  establishing  a  fixed  standard  rate.'* 
Though,  however,  this  conclusion  ought 
never  to  be  lost  sight  of,  the  admitted  imper- 
fections of  ordinary  sliding-scales  make  it 
plain  that  some  less  mechanical  arrangement, 
under  which  the  two-monthly  or  quarterly 
variations  of  the  wage-rate  should  not  be  based 
exclusively  upon  the  variations  of  the  price 
index,  but  also  upon  other  relevant  considera- 
tions, would  be  likely,  if  practicable,  to  possess 
important  advantages.  Accordingly,  elastic 
arrangements,  such  as  have  at  one  time  or  other 
prevailed    in     certain    important    coal-fields, 


PLASTICITY   OF   WAGE-RATES     91 

would — whatever  their  other  results — probably 
bring  about  increased  plasticity  of  wage-rates 
in  response  to  variations  in  the  demand  for 
labour.  In  the  Scottish  agreement  of  1902, 
the  relevant  portion  of  which  remained  un- 
changed till  1907,  it  was  provided  "  that  the 
net  average  realized  value  of  coal  at  the  pit 
bank  for  the  time  being,  taken  in  conjunction 
with  the  state  of  the  trade  and  the  prospects 
thereof,  is  to  be  considered  in  fixing  miners' 
wages  between  the  minimum  and  the  maxi- 
mum for  the  time  being,  and  that,  in  current 
ordinary  circumstances,  a  rise  or  fall  of  6^  per 
cent,  in  wages  on  1888  basis  for  each  4|d. 
per  ton  of  rise  or  fall  in  the  value  of  coal  is 
reasonable."  ^  In  like  manner,  in  the  agree- 
ment entered  into  in  the  Federated  Districts 
in  1906,  the  main  features  of  which  are  still 
current,  it  is  provided  that  "  alterations  in  the 
selling  price  of  coal  shall  not  be  the  sole  factor 
for  the  decision  of  the  Board,  but  one  factor 
only,  and  either  side  shall  be  entitled  to  bring 
forward  any  reasons  why,  notwithstanding 
an  alteration  in  the  selling  price,  there  should 
be  no  alteration  made  in  the  rate  of  wages."  ® 
Arrangements  of  this  sort,  when  operated  in 
a  harmonious  spirit  by  the  two  sides,  carry 
with  them  greater  plasticity  of  wage-rates  than 
is  to  be  found  under  sliding-scale  agreements, 
and,  therefore,  a  fortiori,  than  is  to  be  found 


92  UNEMPLOYMENT 

under  fixed  wage  agreements.  The  mere  fact, 
however,  that  reasoned,  instead  of  automatic, 
action  is  required  under  them  suggests  that 
their  successful  introduction  is  only  likely  to 
prove  practicable  in  industries  where  especially 
cordial  relations  prevail  between  employers 
and  employed. 

There  remains  one  further  relevant  con- 
sideration. It  has  appeared  incidentally  from 
the  preceding  analysis  that,  equally  under  a 
purely  automatic  scale  and  under  what  is, 
in  effect,  such  a  scale  tempered  by  discussion, 
intervals  of  at  least  two  or  three  months  occur 
between  successive  changes  in  wage-rates. 
To  some  extent,  this  fact  is  due  to  the  expense 
and  mechanical  difficulty  that  would  be  in- 
volved in  ascertaining,  with  greater  frequency, 
those  facts  about  prices  upon  which  the  wage- 
changes  are  wholly  or  partly  based.  There 
is  reason  to  suppose,  however,  that  more  far- 
reaching  influences  are  also  at  work.  If  the 
wage-rate  is  continually  changing,  much  in- 
convenience and  uncertainty  are  imposed 
both  upon  employers,  who  are  pledged  to 
deliver  goods  at  an  agreed  price,  and  upon 
workpeople  who,  so  long  as  they  continue 
in  employment,  like  to  maintain  a  constant 
standard  of  living.  To  get  rid  of  these  dis- 
advantages, both  employers  and  employed 
may  well   prefer  a  small  measure  of  rigidity 


THE  CAUSES   OF   FLUCTUATIONS   93 

rather  than  a  system  under  which  wages 
fluctuate  in  response  to  every  varying  wind  of 
demand.  Such  a  measure  of  rigidity,  despite 
the  fact  that  it  is  inevitably  responsible  for 
the  existence  of  a  small  amount  of  unemploy- 
ment, is  likely,  on  the  whole,  to  be  socially 
advantageous,  and  there  is,  therefore,  little 
prospect  that  it  will  ever  be  removed.  Hence, 
though  in  various  ways,  as  the  relations  be- 
tween employers  and  employed  grow  more 
satisfactory  and  are  more  efficiently  organized, 
the  plasticity  of  wage-rates  is  likely  to  in- 
crease, it  is  practically  certain  that  perfect 
plasticity,  and  therewith  the  complete  aboli- 
tion of  unemployment,  will  never  be  attained. 


CHAPTER   VII 

THE    CAUSES    OF    FLUCTUATIONS 

In  the  preceding  chapter  it  was  made 
clear  that,  when  the  measure  of  fluctuation 
present  in  the  demand  for  labour  anywhere 
is  given,  the  average  volume  of  unemployment 
involved  will,  other  things  equal,  be  greater 
or  smaller  according  as  wage-rates  in  the 
country  under  consideration  are  less  or  more 
plastic.     We  have  now  to  suppose  the  degree 


94.  UNEMPLOYMENT 

of  plasticity  in  wage-rates  to  be  given,  and 
to  investigate  the  effects  of  a  greater  or  less 
measure  of  fluctuating  character  in  the  demand 
for  labour. 

A  necessary  preliminary  to  this  inquiry 
is  the  choice  of  some  criterion  of  that  elusive 
concept,  fluctuating  character.  The  fact  has 
to  be  faced  that  any  one  of  a  number  of 
different  criteria  might  be  employed,  and 
that  no  one  of  them  has  any  title  to  be  called, 
in  any  absolute  sense,  the  best.  One  will 
be  better  for  certain  purposes  and  another 
for  certain  other  purposes,  and  the  choice 
between  them  must  be  determined  by  the 
use  to  which  they  are  to  be  put.  In  the 
conduct  of  the  present  discussion  I  propose, 
partly  for  simplicity  and  partly  for  reasons 
that  it  is  not  necessary  to  explain,  to  adhere 
to  the  following  definitions.  Tlie  fluctuating 
character  of  the  demand  for  labour  in  any 
single  separate  centre  of  demand  is  measured 
by  the  difference  between  the  amount  of 
labour  demanded  (at  the  same  normal  rate  of 
wages)  in  the  average  of  all  times  and  the 
amount  demanded  in  the  average  of  good 
(or  of  bad)  times  taken  by  themselves. 
Thus,  if,  in  any  centre,  the  average  demand 
is  for  10,000  men,  the  average  demand  in 
times  better  than  the  average  for  11,000 
men,  and  the  average  demand  in  times  worse 


THE   CAUSES   OF  FLUCTUATIONS  95 

than  the  average  for  9,000  men,  fluctuating 
character  in  the  centre  is  measured  by  the 
work  of  1,000  men.  This  statement  explains 
the  sense  in  which  fluctuating  character  is 
to  be  understood  in  respect  of  the  demand  of 
a  single  separate  centre.  When  the  term  is 
given  a  more  extended  reference  and  is  applied, 
not  to  the  separate  isolated  demand  of  one 
centre,  but  to  the  demand  of  a  whole  country 
embracing  a  number  of  different  centres,  the 
fluctuating  character  of  the  whole  is  measured 
by  adding  together  the  measures  that  repre- 
sent fluctuating  character  in  the  several 
centres  of  which  the  whole  is  made  up. 
For  example,  if  the  country  consisted  of 
a  thousand  centres,  the  demand  in  each  of 
which  had  a  fluctuating  character  measured 
by  the  work  of  a  thousand  men,  the  fluctuating 
character  of  the  demand  of  the  whole  country 
would  be  measured  by  a  thousand  times  the 
work  of  a  thousand  men.^ 

Armed  thus  with  definitions,  we  may 
proceed  to  investigate  the  effect  produced 
on  the  average  volume  of  unemployment  by 
the  existence  of  a  greater  or  less  measure 
of  fluctuating  character.  As  will  appear  in 
the  tenth  chapter,  the  quantity  of  the  effect 
produced  by  any  given  measure  of  fluctuating 
character  is  liable  to  be  greatly  modified  by 
circumstances   connected   with   the   mobility 


96  UNEMPLOYMENT 

of  labour.  There  is  no  reason  to  suppose, 
however,  that  the  quality  of  the  effect  is 
modified  by  these  circumstances.  It  must 
be  conceded,  indeed,  that,  if  the  aggregate 
demand  of  all  the  centres  collectively  was 
absolutely  constant,  the  presence  of  perfect 
mobility  would  reduce  the  volume  of  un- 
employment resulting  from  any  quantity  of 
fluctuating  character  to  zero.  This  extreme 
case,  however,  is  not  of  practical  interest. 
Apart  from  that,  if  fluctuating  character  can 
be  shown  to  be  a  cause  of  unemployment 
in  any  one  condition  of  mobility,  we  may 
safely  conclude  that  it  will  also  be  a  cause  of 
it  in  any  other  condition  of  mobility.  It  v^ill 
suffice,  therefore,  to  concentrate  inquiry  upon 
the  simplest  case,  in  which  there  is  no 
mobility  at  all.  Thus,  we  suppose  that  the 
separate  centres  of  employment  are  abso- 
lutely isolated  from  one  another  as  regards 
temporary  movements  of  the  demand  for 
labour,  so  that  no  workpeople  attached  to 
one  can  move  between  it  and  others,  as  their 
relative  fortunes  change.  Since,  however,  we 
are  not  here  concerned  with  artificial  en- 
hancements of  the  wage-rate,  we  suppose  at 
the  same  time  that  these  centres  are  con- 
nected from  a  long  period  point  of  view. 
We  suppose,  that  is  to  say,  that  the  number 
of  men  attached  to  each  of  them  is  governed 


THE   CAUSES   OF   FLUCTUATIONS     97 

by  free  competition,  in  such  a  way  that  the 
prospects  offered  by  each  to  a  young  man 
choosing  his  occupation  are  substantially 
similar.  If  these  assumptions  are  made,  it 
is  easily  seen  that  the  average  wage-rate  for 
work  of  a  given  degree  of  difficulty  will  be 
slightly  higher — since  something  extra  must 
be  paid  to  compensate  for  greater  uncertainty 
of  employment — in  the  more  fluctuating  than 
in  the  less  fluctuating  centres,  and  that,  in 
every  centre,  it  will  be  such  as  to  attach  to 
that  centre  a  number  of  workpeople  roughly 
intermediate  between  the  number  for  whom 
employment  at  that  rate  can  be  found  in 
good  times  and  in  bad  times  respectively. 
This  proposition,  if  not  obvious  already,  can 
be  made  obvious  by  an  illustration.  Imagine 
a  centre  which,  at  any  given  rate  of  wages, 
has  a  demand,  in  good  times  for  the  services 
of  1,500  men,  and  in  bad  times  for  the  services 
of  1,000  men.  It  is  plainly  not  worth  the 
employer's  while  to  establish  a  wage-rate 
sufficient  to  attach  as  many  as  1,500  men  to 
his  centre,  since,  over  considerable  periods,  he 
will  have  no  work  for  several  hundreds  of 
these  men.  But  neither  is  it  worth  his  while 
to  establish  a  wage-rate  so  low  as  to  attach 
only  1,000  men,  since  in  that  case,  he  would, 
over  considerable  periods,  be  unable  to 
obtain  workpeople  of  whose  services  he  could 


98  UNEMPLOYIMENT 

make  use.  Consequently,  he  will  compromise 
at  an  intermediate  wage-rate,  calculated  to 
attach  to  his  centre  some  intermediate 
number,  say  1,200  men.  This  number  will 
be  determined  by  a  rough  balancing  of  the 
loss  resulting  from  a  deficiency  of  men  in 
good  times  and  that  resulting  from  an  un- 
necessarily high  wages-bill  in  bad  times. 
Since  periods  of  pressure  can  generally  be 
met  in  part  by  resort  to  over -time,  we  may 
presume  that  it  will  stand  at  something  less 
than  half-way  between  the  maximum  and 
minimum  figures  of  his  demand.  As  a  rough 
approximation,  then,  we  may  say  that  the 
number  of  men  attached  to  any  centre  will  be 
nearly  equivalent  to  the  number  of  men 
demanded  there,  at  the  average  rate  of  wages, 
in  the  average  of  all  times.  So  much  being 
understood,  it  is  easily  seen  that,  when  good 
times  and  normal  times  prevail  at  any  centre, 
there  will — on  the  assumption  made  through- 
out this  chapter,  that  the  average  wage-rate 
is  not  artificially  raised — be  no  unemploy- 
ment there;  but,  in  bad  times,  unemploy- 
ment will  exist,  and  will  be  equal  to  the  excess 
of  the  number  of  men  demanded  there  in  the 
average  of  all  times  over  the  number  de- 
manded in  the  said  bad  times.  Since,  then, 
times  better  than  the  average  and  times 
worse  than  the  average  must,  on  the  whole. 


THE   CAUSES   OF   FLUCTUATIONS     99 

balance,  every  centre  is  likely  to  harbour, 
during  about  half  the  period  of  its  existence, 
a  volume  of  unemployment  equal — apart  from 
some  slight  correction  due  to  the  influence 
of  over-time  working — to  the  difference  be- 
tween the  number  of  men  demanded  in  it  in 
the  average  of  all  times  and  the  number 
demanded  in  it  in  the  average  of  bad  times. 
In  these  circumstances,  the  mathematically 
minded  reader  will  perceive  that,  taking  one 
period  with  another,  the  aggregate  volume  of 
unemployment  in  all  the  centres  of  demand 
collectively  will  be  equal  to  about  half  the 
sum  of  the  differences  that  exist  in  each  of 
the  several  centres  between  the  number  of 
men  demanded  in  them  in  the  average  of  all 
times  and  the  number  demanded  in  them  in 
the  average  of  bad  times.  This  figure  is 
equivalent  to  about  half  the  measure  of 
the  fluctuating  character  of  the  demand  for 
labour  in  the  country  as  a  whole,  as  that 
measure  was  defined  at  the  close  of  the  pre- 
ceding paragraph.  It  follows  immediately — 
and  this  result  will  still  be  apparent,  even 
though  to  some  the  preceding  three  or  four 
sentences  may  seem  obscure — that,  other 
things  being  equal,  the  average  volume  of 
unemployment  in  any  country  is  likely  to  be 
greater,  the  greater  is  the  amount  of  fluctu- 
ating character  in  the  demand  for  labour  there. 


100  UNEMPLOYMENT 

The  main  purpose  of  the  present  chapter 
is  to  distinguish  and  discuss  certain  principal 
groups  of  causes  by  which  the  amount  of  fluc- 
tuating character  is  determined.  Before  that 
task  is  undertaken,  however,  it  is  convenient 
to  call  attention  to  an  important  attendant 
circumstance,  upon  which  the  effect  on  the 
fluctuating  character  of  the  demand  for  labour, 
initiated  by  any  cause  whatever,  in  great 
measure  depends.  This  attendant  circum- 
stance is  the  practice  of  making  for  stock. 
It  is  plain  enough  that  variations  in  the  de- 
mand for  labour  in  any  place  or  occupation 
are  often  the  result  of  variations  in  the 
employer's  demand  for  the  thing  the  labour 
helps  to  manufacture,  and  that  these,  in 
turn,  are  often  the  result  of  variations  in 
the  demand  which  he  expects  other  people 
to  make  upon  him  for  that  thing.  If,  there- 
fore, in  periods  when  the  purchases  of  the 
public  are  small,  employers  are  able  and 
willing  to  make  for  stock  goods  that  they 
can  sell  in  periods  when  those  purchases  are 
large,  the  variations  in  their  demand  for 
labour  may  be  confined  within  much  narrower 
limits  than  would  otherwise  be  possible. 
Making  for  stock,  in  short,  is  a  circumstance 
calculated  to  mitigate  the  effect  upon  fluctu- 
ating character  of  all  the  various  causes  that 
tend  to  promote  it.     It  is,  therefore,  desirable 


THE   CAUSES   OF   FLUCTUATIONS     101 

to  disentangle  the  different  influences  by 
which  the  attitude  of  employers  towards 
this  practice  is  determined. 

In  respect  of  certain  classes  of  goods, 
making  for  stock  is  practically  impossible. 
This  is  the  case  with  all  direct  services,  such 
as  those  rendered  by  doctors,  musicians, 
tram-drivers  and  cabmen ;  for  these  services 
are,  from  their  nature,  incapable  of  being 
stored.  It  is  also  the  case  with  certain 
classes  of  commodities,  which  could,  indeed, 
be  stored,  but  only  at  a  prohibitive  cost ; 
for  example,  gas,  electricity,  commodities 
which,  though  of  little  value,  occupy  immense 
space  and  commodities  which  are  especially 
liable  to  breakage.  It  is  the  case  again,  with 
commodities  in  respect  of  which  fashions 
are  continually  changing  or  new  patterns 
are  continually  being  introduced;  for  these, 
though  it  may  be  easy  to  preserve  them 
physically,  cannot,  by  any  means,  be  pre- 
served in  respect  of  value.  Finally,  it  is 
the  case  with  commodities  which  cannot  be 
made  of  standard  form,  but  which,  like  ball- 
dresses,  must  be  specially  constructed  to  the 
order  of  individual  purchasers.  Contrasted 
with  these  various  classes  of  goods  stand  that 
vast  multitude  of  staple  standardized  articles, 
not  perishable,  not  breakable,  not  costly  to 
store  in  large  quantities,  not  subject  to  the 


SAN': 


102  UNEMPLOYMENT 

vagaries  of  fashion.  Such  things  can  be 
made  for  stock  in  bad  times  without  risk 
and  often  with  considerable  advantage  to 
employers.  If  the  processes  by  which  they 
are  made  are  of  such  a  sort  that  temporary 
cessation  involves,  as  is  the  case  with  blast- 
furnaces, heavy  expense  in  restarting,  it  will 
be  profitable  to  carry  the  practice  of  making 
for  stock  very  far.  Thus,  categories  of  goods 
which  are,  and  of  goods  which  are  not,  adapted 
to  this  practice  can  be  roughly  distinguished. 
The  distinction,  however,  it  should  be  ob- 
served, is  not  a  rigid  and  permanent  one. 
Modern  industrial  developments  are  steadily 
shifting  commodities,  which  in  former  times 
could  not  readily  be  made  for  stock,  to  the 
class  of  those  which  can  be  so  made.  Thus, 
the  introduction  of  refrigerating  and  other 
preservative  processes  has  rendered  a  number 
of  articles  of  food,  that  in  old  days  perished 
rapidly,  capable  of  being  stored  for  long 
periods.  Fifty  years  ago,  for  example,  the 
hops  reaped  in  one  season  could  not  be  kept 
till  the  next ;  but  the  advent  of  cold  storage 
has  increased  the  length  of  their  life,  and  has 
enabled  the  high  yields  of  fat  years  to  be 
held  against  the  deficiencies  of  lean  years. 
Again,  partly  as  a  result  of  mechanical 
improvements,  commodities  which  were  for- 
merly made  to  individual  orders,  and  were, 


THE   CAUSES   OF   FLUCTUATIONS     103 

therefore,  incapable  of  being  stored,  are 
more  and  more  being  reduced  to  types  and 
standards.  The  boot -making  industry,  for 
example,  has  passed,  with  the  transition 
from  hand  to  machine  work,  from  the  earlier 
stage,  in  which  most  boots  were  manufactured 
to  order,  to  the  later  stage,  in  which  nearly 
all  are  ready-made.  These  general  considera- 
tions are  important  because  it  is  evident  that, 
whatever  are  the  ultimate  causes  by  which 
the  fluctuating  character  of  the  demand  for 
labour  in  any  country  is  determined,  the 
measure  of  it  will  be  smaller,  the  larger  is  the 
proportion  of  the  country's  industry  that  is 
devoted  to  the  production  of  those  classes 
of  commodities  which  offer  scope  for  the 
practice  of  making  for  stock.  With  this 
preliminary,  we  may  proceed  to  investigate 
certain  principal  groups  of  fundamental  causes, 
by  which  the  fluctuating  character  of  the 
demand  for  labour  is  determined. 

Among  these  attention  may  be  directed 
first  to  two  groups  of  what  may  fairly  be 
called  random  or  sporadic  causes,  because 
they  burst  out  without  rhythm  and  without 
connection,  now  in  one  part  of  the  industrial 
field  and  now  in  another.  One  of  these  two 
groups  contains  causes  that  operate  separately 
upon  the  several  firms  under  whose  auspices 
any  particular  class  of  work  is  carried  out. 


104  UNEMPLOYMENT 

The  demand  for  labour  at  each  of  these 
centres  is  acted  upon  by  such  things  as  varia- 
tions in  the  skill  with  which  the  management 
of  particular  firms  is  conducted,  and  variations 
of  a  purely  accidental  character  in  the  orders 
given  by  the  particular  clientele  attached 
to  each  of  them.  Causes  of  this  kind  act 
upon  the  various  centres  of  employment 
quite  independently.  There  is  no  presump- 
tion that  the  several  variations  of  demand  to 
which  they  lead  will  all  be  of  the  same  char- 
acter. Rather,  it  should  be  presumed  that, 
if  a  wide  enough  area  is  taken  into  considera- 
tion, they  will  tend  roughly  to  cancel  one 
another,  so  that  at  any  one  time  the  abnorm- 
ally low  demands,  to  which  they  lead  in  some 
places,  are  likely  to  be  offset  by  an  approxi- 
mately equivalent  mass  of  abnormally  high 
demands  in  other  places.  The  other  group  of 
random  causes  consists  of  those  fundamental 
changes,  which  bring  about  what  are  known  as 
transformations  of  industry.  They  include 
changes  in  people's  tastes,  or  in  the  knowledge 
of  mechanical  processes,  or  in  the  raw  materials 
available  for  the  manufacture  of  particular 
products.  These  causes  affect  the  demand 
lor  labour  in  different  industries  regarded  as 
wholes,  and  not,  like  the  preceding  group, 
the  demand  in  different  firms  belonging  to 
the  same  industry.     Equally  with  the  latter, 


THE   CAUSES   OF   FLUCTUATIONS     105 

however,  they  act  independently  upon  the 
various  points  which  they  affect ;  so  that 
those  of  them,  which  make  at  any  time  for 
a  reduction  in  the  demand  for  labour  in  some 
industries,  tend  to  be  balanced  by  others, 
which  make  for  a  more  or  less  equivalent 
expansion  in  other  industries. 

To  this  general  account  of  the  two  principal 
groups  of  random  causes,  it  may,  perhaps, 
be  well,  before  we  pass  on,  to  add  a  word  of 
caution.  The  second  of  the  two  groups — 
those  causes,  namely,  which  carry  with  them 
transformations  of  industry,  are  popularly 
regarded  as  the  causes  far  excellence  of  un- 
employment. And,  indeed,  it  is  true  that 
they  are  responsible  for  certain  cases  pecu- 
liarly calculated  to  impress  the  imagina- 
tion. When  the  hard-won  faculty  of  a  good 
workman  is  rendered  useless  by  the  invention 
of  a  new  machine,  that  evil  incident  in  the 
onward  march  of  progress  is  patent  and 
known  to  all.  There  can  be  little  doubt, 
however,  that  the  changes  in  demand  for 
particular  sorts  of  labour,  which  are  brought 
about  by  transformations  of  industry,  consti- 
tute a  relatively  insignificant  part  of  the 
aggregate  mass  of  changes  in  the  demand  for 
labour  that  occur — or  at  all  events  of  those 
that  are  important  from  our  present  point  of 
view.     For  these  transformations  rarely  take 

D  2 


106  UNEMPLOYMENT 

place  in  a  violent  and  ruinous  manner.  When, 
by  reason  of  mechanical  discoveries  or  other 
causes,  an  old  occupation  decays  before  a  new 
one,  the  decay  is  usually  gradual.  The 
demand  for  labour  falls  off  slowly,  and  the 
contraction  that  takes  place  in  any  one  year 
is  small.  Consequently,  if  the  importance  of 
the  changes  in  demand  due  to  transformations 
is  to  be  compared  with  that  of  changes  brought 
about  in  other  ways,  only  a  very  small  part 
of  the  aggregate  change  involved  in  a  trans- 
formation should  be  counted  in  respect  of  anj^ 
one  year.  Nor  is  this  all.  A  gradual  change 
of  given  magnitude,  though  equal  quantita- 
tively to  a  rapid  change  of  the  same  magnitude, 
is  not  equal  from  the  standpoint  of  our  present 
inquiry,  because  it  is  capable  of  being  met, 
not  merely  by  unemployment,  but  also  by  a 
change  in  the  direction  of  the  influx  into 
industry  of  a  new  generation  of  workpeople. 
The  importance  of  this  point  is  made  clear 
by  certain  statistical  investigations  carried 
out  by  Professor  A.  L.  Bowley.  Revie^ving 
in  1904  the  occupation  figures  printed  in  the 
three  preceding  censuses,  he  wrote  :  "  The 
main  changes  may  have  been  accomplished, 
so  far  as  the  broad  figures  show,  without  any 
necessity  on  the  part  of  any  man  to  change 
his  occupation,  but  simply  by  changes  in  the 
supply   of   new-comers.     If   a   proportion   of 


THE   CAUSES   OF   FLUCTUATIONS     107 

lads  bred  in  the  country  had  gone  to  the 
railways  and  coal-mines,  and  taken  situations 
as  bus-drivers,  grooms,  or  gardeners,  and  if 
the  lads  in  Yorkshire  and  Lancashire,  whose 
fathers  were  in  the  woollen  and  cotton  mills, 
had  gone  into  the  cycle  or  machine  trades  or 
ship-building,  or  become  clerks  in  the  cities, 
the  numbers  would  have  grouped  themselves 
much  as  the  census  shows.  It  seems  very 
probable  that  such  changes  have  taken  place. 
The  only  case  numerically  important  where 
there  is  an  actual  diminution  of  numbers  is 
agriculture,  and  this  would  be  sufficiently 
accounted  for  by  the  non-filling  of  the  places 
of  the  old  men  as  they  dropped  out  of  the 
ranks."  ^  This  passage  is  not  cited  with  the 
object  of  suggesting  that  the  sporadic  changes 
in  demand  for  labour  involved  in  transforma- 
tions of  industry  are  of  no  importance.  They 
do  possess  importance.  But  that  importance 
is  relatively  small,  as  compared  with  the  im- 
portance of  certain  rhythmical  changes  in  the 
demand  for  labour  associated  with  two  other 
groups  of  causes,  to  which  we  now  turn. 

The  essential  character  of  these  causes  is, 
not  so  much  that  they  display  a  certain 
periodicity  in  their  appearance,  as  that  they 
do  not,  like  the  causes  just  discussed,  act  upon 
the  various  centres  of  demand  independently. 
The  first  of  the  two  groups,  into  which  they 


108  UNEMPLOYMENT 

may  conveniently  be  divided,  consists  of  those 
changes  of  climatic  conditions  that  accom- 
pany the  procession  of  the  seasons.  These 
changes  are  obviously  in  the  nature  of  common 
causes  acting,  not  separately  upon  different 
places  and  occupations,  but  synchronously 
upon  all  places  and  occupations  in  the  same 
region  of  the  earth.  There  is,  therefore, 
nothing  random  about  the  distribution  of 
their  incidence.  When  the  climate  changes 
in  a  definite  manner,  there  is  everywhere  a 
definite  response.  As  regards  the  various 
places  within  a  country  at  which  any  given 
occupation  is  carried  on,  it  is  obvious  that 
a  change  calculated  to  contract  (or  to  expand) 
demand  at  any  one  centre  is  likely  also  to 
contract  (or  to  expand)  it  at  all  the  other 
centres.  As  regards  the  various  occupations, 
it  is  equally  obvious  that  each  several  kind 
of  climatic  change  is  likely  at  the  same  time 
to  contract  the  demand  of  some  definite 
groups  of  occupations  and  to  expand  the 
demand  of  other  definite  groups.  Thus,  the 
advent  of  winter  is  a  cause  making,  in  all 
parts  of  the  country,  for  an  expansion  in  the 
demand  for  labour  in  industries  that  help 
to  supply  the  community  with  artificial  heat 
and  light ;  while,  at  the  same  time,  it  is  a 
cause  making  for  a  contraction  in  the  demand 
of    those    whose    operations    are    conducted 


THE   CAUSES   OF   FLUCTUATIONS      109 

in  the  open  air,  and  are,  like  the  work  of 
building,  liable  to  hindrance  from  frost  and 
wet  weather.  The  advent  of  summer  clearly 
exercises  a  precisely  opposite  influence  upon 
these  two  groups  of  industries.  Furthermore, 
the  changes  of  the  seasons  touch  indirectly 
yet  other  industries  through  their  influence 
on  the  recreations  of  the  public.  In  this  way 
the  dressmaking  industry,  for  example,  and 
the  industry  of  hotel  and  restaurant  service 
are  affected.  On  the  whole,  it  appears  to  be 
the  fact,  as  might  indeed  be  expected  from 
general  considerations,  that  the  cold  weather 
of  winter  is  predominantly  a  cause  of  con- 
traction in  the  demand  for  labour,  the  area 
over  which  it  cuts  down  demand  being  wider 
than  that  over  which  it  augments  demand, 
while  the  warm  vvcather  of  summer  is  pre- 
dominantly a  cause  of  expansion. 

The  second  of  the  two  groups  of  rhythmical 
causes,  to  which  reference  was  made  above, 
may  be  described  compendiously  as  cyclical 
movements  of  the  aggregate  wage  fund. 
These  causes,  like  seasonal  changes,  have  the 
character  of  common  causes,  and  act  syn- 
chronously in  a  definite  manner  over  a  wide 
field.  They  differ  from  seasonal  changes, 
however,  in  three  respects.  First,  their 
period,  as  traced  in  their  effects,  is  much 
longer    and    somewhat    less    regular,     being 


110  UNEMPLOYMENT 

completed,  not  in  the  fixed  space  of  a  year, 
but  in  a  space  that  seems  to  vary  between 
seven  years  and  eleven.  Secondly,  their  reach 
is  much  wider  than  that  of  seasonal  changes  : 
there  are  fewer  industries  that  lie  substantially 
outside  the  range  of  their  influence.  Thirdly, 
while  seasonal  changes  so  operate  as  to 
expand  the  demand  for  labour  in  some  in- 
dustries and,  at  the  same  time,  to  contract  the 
demand  in  others,  these  causes  seem  always  to 
act  in  the  same  sense  upon  all  the  industries 
that  they  influence  at  all.  They  are,  in  short, 
causes  of  general  expansion  and  general 
contraction.  This  account,  however,  does  not 
by  any  means  exhaust  their  nature.  They 
possess  a  further  still  more  important  dis- 
tinguishing characteristic.  Though,  as  has 
just  been  explained,  they  act  upon  all  in- 
dustries in  the  same  direction,  they  are  far 
from  acting  upon  them  all  to  the  same  extent. 
On  the  contrary,  they  bring  about  variations 
in  the  demand  for  labour  in  industries  engaged 
in  the  manufacture  of  what  may  be  called 
instrumental  goods — namely,  machines  and 
other  instruments  required  to  assist  further 
manufacturing  processes — immensely  greater 
than  those  which  they  bring  about  in  other 
industries.  The  reason  for  this  is  two-fold. 
In  the  first  place,  cyclical  movements  of  the 
aggregate   wage-fund,    implying   as   they   do 


THE   CAUSES   OF  FLUCTUATIONS    111 

variations  in  investment,  naturally  react,  in 
the  main,  upon  those  commodities  through 
which  investment  becomes  materialized ;  and 
these  commodities  consist  largely  in  such 
obvious  instrumental  goods  as  factory  build- 
ings, ships,  machinery,  iron  and  steel  in 
various  stages  of  manufacture,  railway  rolling 
stock  and  so  forth.  In  the  second  place, 
commodities  of  this  type  are,  as  a  rule,  less 
rapidly  destroyed  in  use  than  the  general  run 
of  goods  utilized  in  direct  consumption — 
consumption  goods,  in  short — such  as  food, 
clothing  and  various  forms  of  personal  service. 
Consequently,  the  stock  of  them  existing  at 
any  time  is,  generally  speaking,  much  larger 
relatively  to  the  annual  output.  This  cir- 
cumstance has  an  important  consequence. 
When  the  demand  for  wheat  increases  or 
decreases,  as  between  two  periods,  by,  say, 
10  per  cent.,  the  demand  for  the  production 
of  new  wheat  increases  or  decreases  in  a 
somewhat  similar  proportion.  When,  how- 
ever, the  demand  for  ships  or  machinery  or 
rolling  stock  increases  or  decreases,  as  between 
two  periods,  by  that  percentage,  demand  for 
the  production  of  new  ships,  machinery  or 
rolling  stock  necessarily  increases  or  decreases 
by  much  more  than  10  per  cent.  This  larger 
variation  results  partly  from  the  mere  exist- 
ence of  the  stock,  and  partly  from  the  fact 


112  UNEMPLOYMENT 

that  a  period  of  boom  adds  to  the  stock,  and 
so  confronts  the  ensuing  period  of  depression 
with  an  enlarged  initial  supply,  which,  of 
itself,  necessarily  causes  the  demand  for  new 
production  to  contract.  But,  plainly,  it  is 
with  the  demand  for  new  production  that  the 
demand  for  labour  is  associated.  The  tend- 
ency of  cyclical  movements  of  the  general 
wage-fund  to  react  with  exceptional  force  upon 
the  demand  for  labour  in  industries  engaged  in 
the  production  of  instrumental  goods  is  thus 
demonstrated.  The  moral,  of  course,  is  that 
fluctuating  character  in  the  demand  for  labour 
is  likely  to  be  especially  marked  in  countries, 
a  large  proportion  of  whose  resources  is 
employed  in  the  manufacture  of  this  class 
of  goods.  A  nation,  which  concentrates  its 
forces  upon  the  manufacture  of  the  instru- 
ments of  industry,  courts,  thereby,  a  relatively 
heavy  burden  of  unemployment. 


CHAPTER   VIII 

CYCLICAL    MOVEMENTS 

During  the  latter  part  of  the  preceding 
chapter  we  were  engaged  in  discussing  the 
influence  upon  the  fluctuating  character  of 
the  demand  for  labour  of  a  group  of  causes. 


CYCLICAL   MOVEMENTS  113 

which  we  agreed  to  name  cycHcal  movements 
of  the  aggregate  wage-fund.  It  has  now  to  be 
observed  that  these  cycHcal  movements  are 
themselves  presumably  the  result  of  causes, 
and  that  our  explanation  necessarily  remains 
incomplete,  until  the  nature  of  these  causes 
has  been  revealed.  There  is  thus  presented 
for  attack  a  new  problem,  which  is  at  once 
difficult  and  important.  That  it  is  difficult  is 
sufficiently  proved  by  the  fact  that  serious 
differences  of  opinion  prevail  among  experts 
as  to  its  right  solution.  That  it  is  important 
is  no  less  evident,  since  to  discover  the  causes  of 
these  movements  is  a  necessary  preliminary  to 
mitigating  them,  and  to  succeed  in  mitigating 
them  is  also  to  succeed  in  lessening  the  average 
volume  of  unemployment.  The  discussion  of 
this  problem  is  the  purpose  of  the  present 
chapter. 

The  first  question  that  has  to  be  asked  is 
why  these  cyclical  movements  occur  at  all. 
The  answer  appears  to  be  somewhat  as 
follows :  the  quantity  of  resources  that  a 
community  is  prepared  at  any  time  to  devote 
to  the  purchase  (at  a  given  wage)  of  labour, 
to  be  set  to  work  on  the  production  of  future 
goods,  is  roughly  equivalent  to  the  quantity 
that  it  is  prepared  to  devote  to  investment. 
This  depends  upon  two  things,  the  available 
real  income  of  the  community  and  the  choice 


114  UNEMPLOYMENT 

that  those  who  have  control  of  it  make  be- 
tween investment  and  other  uses — uses  of 
which,  from  the  present  point  of  view,  the 
most  important  is  the  simple  storage  of 
commodities  in  warehouses  and  shops,  where 
they  await  future  consumption.  Generally 
speaking,  any  expansion  in  a  country's  real 
income  is  likely  to  lead  to  an  increase  in  the 
aggregate  wage-fund;  and  so  also  is  any 
tendency  towards  optimism  in  the  conception 
which  business  men  entertain  of  the  prospects 
of  investment.  A  contraction  of  real  income, 
on  the  other  hand,  or  a  movement  towards 
pessimism  among  business  men  is  likely  to 
involve  a  diminution  in  the  aggregate  wage- 
fund.  Now,  variations  in  real  income  come 
about  naturally  enough  as  the  result  of  varia- 
tions in  the  bounty  of  nature,  and  variations 
in  business  confidence  come  about  as  the  result 
of  variations  in  the  mood  of  business  men. 
At  first  sight  it  might  seem  that  these  two 
sets  of  variations  are  independent  and  are 
likely  to  start  separate  trains  of  causation. 
As  a  matter  of  fact,  however,  they  are  often 
associated  together,  the  changes  in  mood 
being  themselves  caused  by  changes  in  the 
bounty  of  nature.  Summarizing  a  careful 
study  of  the  influence  of  crops  on  business 
in  America,  Professor  Piatt  Andrews  ob- 
serves :    "  One  cannot  review  the  past  forty 


CYCLICAL  MOVEMENTS  115 

years  without  observing  that  the  beginnings 
of  every  movement  towards  business  prosper- 
ity, and  the  turning-point  towards  every 
business  decline  (movements  which  frequently, 
it  will  be  remarked,  have  antedated  the  actual 
outbreak  of  crises  by  several  years)  were 
closely  connected  with  the  outturn  of  the 
crops."  ^  Furthermore,  an  association  of  this 
kind,  which  Professor  Piatt  Andrews,  like 
Jevons  before  him,  considers  to  be  proved 
fact,  is  one  that  we  are  also  led  to  expect  by 
general  reasoning.  For,  after  all,  it  is  a 
tolerably  familiar  experience  that  the  judg- 
ments which  people  form  are  biassed  by  their 
feelings.  When  they  are  prosperous,  they 
are  apt  to  look  on  the  sunnier  side  of  doubt. 
Consequently,  good  harvests,  so  far  as  they 
directly  and  indirectly  improve  the  fortunes 
of  the  business  world,  are  likely  to  act  as  a 
spur  to  optimism.  Deduction  and  induction 
thus,  in  a  measure,  corroborate  one  another, 
and  we  may  reasonably  conclude  that,  in  a 
considerable  number  of  cases,  booms  in  busi- 
ness confidence  have  their  origin  in  good  har- 
vests. If  this  is  so,  the  aggregate  wage-fund  is 
subject  at  the  same  time  to  both  the  two  causes 
of  expansion  that  were  distinguished  above, 
namely,  increased  real  income  and  increased 
willingness  to  employ  income  in  investment 
instead   of   holding   it   in   store.     These  two 


116  UNEMPLOYMENT 

causes  come  into  play  together  in  seasons 
when  nature  is  specially  bountiful.  A  good 
case  can  be  made  out  for  the  view  that  such 
seasons  recur  at  intervals  varying  between 
seven  and  eleven  years,  and  are  due  to  solar 
changes.  If  this  be  so,  Jevons'  suggestion 
that  the  ultimate  reason  for  cyclical  move- 
ments is  to  be  found  in  sunspots  may,  per- 
haps, contain  a  larger  element  of  truth  than 
some  recent  critics  have  been  willing  to 
believe. 

When  the  originating  causes  of  cyclical 
movements  of  the  aggregate  wage-fund  have 
been  determined — or,  if  the  sceptical  prefer 
it,  in  spite  of  the  fact  that  these  causes  have 
not  been  satisfactorily  determined — ^there  re- 
mains a  further  question  of  great  practical 
importance.  The  fluctuating  character  of  the 
demand  for  labour  in  the  country  and,  there- 
fore, the  average  volume  of  unemployment, 
must  obviously  be  greater,  the  greater  is  the 
magnitude  of  these  cyclical  movements.  We 
must,  therefore,  ask  by  what  influences  this 
magnitude  is  determined,  or  rather — since  that 
question  is  too  large  for  treatment  here — by 
what  influences,  of  a  kind  that  it  may  be 
possible  for  social  reformers  to  modify,  it  is 
in  part  determined.  These  influences  may 
be  distinguished  into  two  principal  groups, 
namely,    the    organization    of    the    business 


CYCLICAL   MOVEMENTS  117 

world  and  the  organization  of  modern  mone- 
tary systems.  By  the  arrangements  that 
prevail  under  these  two  heads  the  extent  of 
the  upward  and  downward  swing  of  the  aggre- 
gate wage-fund  is  affected  in  a  very  important 
degree.  It  is  necessary,  therefore,  for  the 
purpose  of  this  volume,  that  some  analysis  of 
them  should  be  attempted. 

The  most  notable  and  obvious  characteristic 
of  the  organization  of  a  modern  business 
community  is  the  close  interdependence  that 
subsists  between  its  various  parts.  This  inter- 
dependence is,  to  some  extent,  purely  psycho- 
logical— optimism  and  pessimism  have  a  strange 
power  of  diffusing  themselves  among  people 
assembled,  as  business  men  often  are,  in  close 
physical  contiguity — but  it  is,  in  the  main, 
mediated  by  a  material  bond  in  the  form  of 
credit.  For  practically  the  whole  of  modern 
business  is  conducted  on  borrowed  resources. 
"  The  debtor-creditor  relation  subsists,  not 
merely  between  business  men  and  sleeping 
capitalists,  but  also  between  different  business 
men.  In  fact,  most  firms  are  both  borrowers  and 
lenders.  They  borrow  from  one  set  of  people 
by  buying  materials  from  them  on  credit,  and 
they  lend  to  another  set  by  selling  the  fruits 
of  their  workmanship  on  credit.  Thus,  v/e 
have,  as  it  were,  a  series  in  the  form  A,  B,  C,  D, 
each  member  of  which  is  debtor  to  the  one 


118  UNEMPLOYMENT 

preceding  and  creditor  to  the  one  succeeding 
himself."  ^  Manufacturers  of  raw  material 
are  borrowers  from  the  Banks  and  lenders  to 
manufacturers  of  finished  products,  manu- 
facturers of  finished  products  are  borrowers 
from  manufacturers  of  raw  materials  and 
lenders  to  wholesale  dealers,  wholesale  dealers 
are  borrowers  from  manufacturers  of  finished 
products  and  lenders  to  retailers,  retailers  are 
borrowers  from  wholesale  dealers  and  lenders 
to  customers  who  buy  on  credit.  This  close 
interdependence  among  the  different  parts  of 
the  business  world  has  the  result  that  hopeful- 
ness in  one  investor  will  not,  in  general, 
cancel  hopelessness  in  another,  but  that  the 
whole  body  will  be  united,  sometimes  in 
confidence,  sometimes  in  fear.  This,  of  itself, 
means  that  the  movements  which  occur  are 
likely  to  be  large.  That,  however,  is  not  all. 
There  is  the  further  important  result  that  rash 
trading  on  the  part  of  a  comparatively  small 
number  of  houses  may  threaten  widespread 
disaster,  and,  may,  therefore,  quite  suddenly 
drive  the  main  part  of  the  business  world  from 
the  heights  of  optimism  to  abysses  of  suspicion 
and  over-caution.  There  can  be  little  doubt, 
therefore,  that  the  range  covered  by  the 
upward  and  do^vnward  swing  of  the  aggregate 
wage-fund  would  be  lessened,  if  the  present 
system   of    credit   trading    between    business 


CYCLICAL   MOVEMENTS  119 

men  could  be  supplanted  in  any  measure  by 
trading  against  cash,  or  if  the  average  length 
of  the  credits  granted  could  be  reduced. 

In  this  connection,  however,  another  import- 
ant matter  calls  for  consideration.  Given  the 
relation  of  interdependence  between  different 
business  houses,  and  given  the  degree  of  pru- 
dence or  rashness  with  which  certain  of  them 
conduct  their  affairs,  the  resultant  movements 
from  optimism  to  pessimism  are  not  determined 
by  these  things  alone.  Their  range  is  also 
affected  to  a  very  important  extent  by  the 
policy  and  practice  of  the  Banks.  For  it  is 
in  the  power  of  these  institutions  either  to 
assist  rash  speculators  along  the  road  to 
disaster,  thus  making  their  ultimate  collapse 
and  its  consequences  to  others  more  serious, 
or  to  check  them  at  a  comparatively  early 
stage.  And  it  is  also  in  their  power,  when 
disaster  comes,  to  save  from  the  general  wreck 
certain  houses,  which  are  really  sound,  but 
whose  resources  are  locked  up  in  such  a  way 
that  they  must,  unless  they  receive  temporary 
assistance,  go  down  before  the  storm.  It  was 
a  recognition  of  these  facts  that  led  Bagehot 
to  pen  his  famous  advice  to  the  Bank  of 
England  :  "  The  end  is  to  stay  the  panic ; 
and  the  advances  should,  if  possible,  stay  the 
panic.  And  for  this  purpose  there  are  two 
rules.     First,    that   these   loans   should   only 


120  UNEMPLOYMENT 

be  made  at  a  very  high  rate  of  interest.  .  .  . 
Secondly,  that  at  this  rate  these  advances 
should  be  made  on  all  good  banking  securities, 
and  as  largely  as  the  public  ask  for  them."  ^ 
The  policy  which  Bagehot  recommended  in  this 
well-known  passage  is  now  a  recognized  part 
of  British  banking  practice,  and  its  adoption 
has  probably  been  responsible,  indirectly,  for 
an  important  limitation  in  the  range  of  move- 
ments undergone  by  the  aggregate  wage-fund. 
There  remains  for  consideration  the  influ- 
ence on  the  range  of  these  movements  that 
is  exerted  by  the  monetary  systems  current 
in  the  modern  world.  Everywhere,  as  things 
are  at  present,  transactions  are  conducted  in 
terms  of  a  standard  of  purchasing  power, 
whose  value,  in  relation  to  commodities  in 
general,  is  liable  to  vary  vnth  variations  in 
the  demand  for  it.  When  business  men  raise 
loans,  they  do  so  in  the  form  of  a  claim  over 
money,  with  a  contract  to  pay  interest,  and 
eventually  to  repay  the  principal,  by  m.eans  of 
a  defined  quantity  of  money.  In  times  of 
industrial  activity,  however,  since  invest- 
ments are  carried  through  with  money 
borrowed  from  the  Banks  and  expended  on 
the  purchase  of  materials  and  the  hire  of 
labour,  general  prices  are  apt  to  rise  above 
their  normal  level,  or,  in  other  words,  the  real 
value  of  a  pound  is  apt  to  become  less  than  it 


CYCLICAL   MOVEMENTS  121 

was.  The  rise  in  prices,  however,  has  not,  in 
general,  been  perfectly  foreseen  and  adequately 
allowed  for  in  the  terms  of  loan  contracts. 
Hence,  as  it  were,  by  a  trick  of  fate,  in  periods 
of  boom  business  men  are  given  an  excess 
of  prosperity  at  the  expense  of  sleeping 
capitalists ;  because  the  real  interest  which 
they  have  to  pay  on  their  loans  is  automatic- 
ally reduced.  Nor  is  this  their  only  ad- 
vantage. If  they  wish,  on  these  occasions, 
to  raise  still  further  loans,  they  are  probably 
able  to  foresee  a  continuing  rise  of  prices 
better  than  the  general  body  of  lenders,  and 
so  can  reckon  on  obtaining  new  loans  at  a 
lower  rate  of  interest  than  these  lenders 
would  be  willing  to  take,  if  they  understood 
the  situation  as  well  as  their  clients.  In 
respect,  therefore,  of  old  and  new  loans  alike, 
business  men.,  in  times  of  industrial  activity, 
obtain  a  special  gain  at  the  expense  of  their 
creditors,  and  are,  therefore,  led  to  extend 
their  investments,  and  hence  the  aggregate 
wage-fund,  further  than  they  would  other- 
wise have  done.  It  is  easily  seen,  by  following 
out  a  kindred  line  of  argument,  that,  in  times 
of  industrial  depression,  business  men  suffer 
a  special  loss  for  the  benefit  (more  or  less)  of 
their  creditors,  and  are  thereby  led  to  contract 
their  investments,  and,  hence,  the  aggregate 
wage-fund,  further  than  they  would  otherwise 


122  UNEMPLOYMENT 

have  done.  It  follows  that  the  liability  of 
general  prices  to  vary,  or,  in  other  words, 
the  instability  of  the  standard  of  purchasing 
power,  is  a  cause  tending  to  expand  the  range 
of  the  movements  that  occur  in  the  aggregate 
wage-fund.  Consequently,  the  introduction  of 
any  arrangement  capable  of  counteracting  this 
cause  would,  pro  tanto,  lessen  the  fluctuating 
character  of  the  demand  for  labour  and,  there- 
with, the  average  volume  of  unemployment. 

With  this  object  in  view,  a  number  of 
economists  have,  from  time  to  time,  advocated 
the  supersession  of  the  gold  standard,  as  it 
prevails  to-day  in  the  principal  industrial 
States,  by  a  currency  based  on  two  or  more 
metals,  instead  of  upon  one.  It  can  be  shown 
that  such  a  currency,  if  adopted  by  inter- 
national agreement  among  the  leading 
countries  of  the  world,  would  probably  render 
general  prices  somewhat  less  variable  in  the 
face  of  industrial  fluctuations  than  they  are 
at  present.  It  is  generally  recognized,  how- 
ever, that  the  improvement  to  be  hoped  for 
from  a  change  of  this  kind  cannot  in  any  case 
be  other  than  small.  Partly  for  this  reason, 
and  partly  on  account  of  the  practical  diffi- 
culties and  inevitable  misunderstandings  to 
which  bimetallic  systems  and  analogous  ar- 
rangements are  exposed,  the  movement  on 
their  behalf,  which  had  considerable  import- 


CYCLICAL   MOVEMENTS  123 

ance  twenty  years  ago,  has  now  died  down. 
These  methods  of  attacking  the  problem  of 
variable  general  prices  need  not,  therefore, 
be  examined  here,  and  attention  may  be  con- 
fmed  to  two  other  methods,  both  of  which 
have  recently  roused  popular  interest. 

The  first  of  these  methods,  originally  sug- 
gested by  Jevons,  consists  in  the  establish- 
ment of  a  "  tabular  standard  of  value,"  in 
terms  of  which  business  men  should  be  per- 
mitted and  encouraged  to  make  contracts 
involving  payments  of  money  in  the  future. 
Under  this  plan  the  actual  currency  would 
remain  exactly  as  it  is  at  present.  But  a 
Government  Department  would  publish, 
month  by  month,  an  index-number  showing 
how  much,  in  terms  of  things  in  general — 
meat,  cotton,  wheat,  iron  and  so  forth — a 
sovereign  was  worth  at  one  time  as  compared 
with  other  times.  Suppose,  for  example, 
that  in  1900  the  value  of  a  sovereign  were 
represented  by  100,  then,  if  general  prices  in 
1910  had  risen  10  per  cent.,  its  value  would, 
in  that  year,  be  represented  (approximately) 
by  90.  As  things  are  at  present,  a  loan  of 
£1,000  at  4  per  cent,  made  in  1900  involves 
the  annual  payment  of  40  sovereigns  so 
long  as  the  loan  lasts.  In  1910,  therefore, 
the  creditor  receives  40  sovereigns.  These 
40  sovereigns,   however,   on  account   of  the 


124  UNEMPLOYMENT 

rise  of  prices,  only  purchase  nine-tenths  as 
many  actual  consumable  goods  as  they 
purchased  in  1900.  Hence,  though  interest 
in  terms  of  money  is,  as  before,  4  per  cent., 
interest  in  terms  of  things — ^the  real  interest 
and  the  only  interest  that  matters — has  fallen 
to  nine-tenths  of  4  per  cent.  If  the  loan 
had  been  contracted  in  terms  of  the  tabular 
standard,  however,  the  consideration  would 
have  been  the  payment  in  each  year,  not  of 
40  sovereigns,  but  of  a  number  of  sovereigns 
sufficient  to  buy  in  each  year  what  40 
sovereigns  bought  in  1900.  Thus,  in  1910 
the  interest  paid  in  terms  of  money  would 
be,  not  40  sovereigns,  but  ten-ninths  of  40 
sovereigns.  It  is  obvious  that,  under  an 
arrangement  of  this  kind,  the  liability  of 
general  prices  to  vary  would  not  cause 
business  men  to  gain  at  the  expense  of  their 
creditors  in  times  of  boom  and  to  lose,  for 
the  benefit  of  their  creditors,  in  times  of 
depression;  and  that,  therefore,  that  cause 
of  expansion  in  the  range  of  movement  of  the 
aggregate  wage-fund  would  be  put  out  of 
action.  It  is  no  less  obvious,  however,  that, 
granted  the  regular  publication  of  an  official 
index-number,  resort  to  it  as  a  basis  of  con- 
tracts, since  this  must  involve  definite  active 
steps  on  the  part  of  the  business  community, 
would  not   easily  be   brought  about.     Even 


CYCLICAL   MOVEMENTS  125 

in  the  case  of  those  business  men  whose 
future  contracts  were  all  in  the  same  direction 
— all  contracts  to  pay  interest  or  all  contracts 
to  receive  it — inertia  and  tradition  would 
urge  them  strongly  to  resent  this  new  thing. 
And  in  the  case  of  those  who  were  at  the  same 
time  borrowers  and  lenders  there  would  be 
a  further  difficulty  :  for  to  adopt  the  tabular 
standard  in  respect  of  contracts  to  make 
payments  would  involve  a  real  risk,  unless 
it  were  practicable  to  adopt  it  also  in  respect 
of  contracts  to  receive  them.  Consequently, 
even  if  A  and  B  were  both  anxious  to  con- 
tract together  in  terms  of  the  tabular  standard, 
they  might  be  prevented  from  doing  so  by 
the  fact  that  one  of  them  was  involved  in  an 
opposite  kind  of  contract  with  C,  and  that  C 
would  have  nothing  to  do  with  "  new-fangled 
notions."  For  these  reasons  the  method  of  the 
optional  tabular  standard  cannot  be  said  to 
hold  the  promise  of  rapid  or  wide  success. 

We  are  thus  led  forward  to  the  second  of  the 
two  methods  referred  to  above.  This  method, 
which  is  much  more  radical  in  character  than 
that  just  discussed,  has  been  developed,  and 
is,  at  the  present  time,  being  enthusiastically 
advocated,  by  Professor  Irving  Fisher  of 
Yale  University.  Whereas  the  method  of  the 
optional  tabular  standard  requires,  for  its 
success,  the  active  co-operation  of  business 


126  UNEMPLOYMENT 

men,  this  method  dispenses  wholly  with  their 
co-operation  and  makes  no  call  whatever 
on  their  understanding.  The  proposal,  in 
broad  outline,  is  as  follows :  as  before,  a 
Government  Department  should  publish 
month  by  month  an  index  number  represent- 
ing, this  time,  the  variations  in  the  purchasing 
power  of  an  ounce  of  gold.  The  weight  of 
gold  in  the  standard  coin — ^in  England  the 
sovereign — should  be  reduced,  in  such  wise 
as  to  make  it,  in  effect,  a  "  token  coin."  That 
is  to  say,  the  Mint  should  no  longer  give  back 
in  coined  form,  the  whole,  but  only  a  part, 
of  the  bullion  brought  to  it.  In  these  circum- 
stances, a  given  weight  of  coined  gold  would 
always  be  more  valuable  than  the  same  weight 
of  uncoined  gold.  The  quantity  of  coined 
gold  given  in  exchange  for  a  given  weight  of 
bullion  would  not,  however,  on  Professor 
Fisher's  plan,  be  a  fixed  quantity,  but  would 
be  increased  or  diminished  according  as  the 
index-number  of  general  prices  showed  a 
tendency  to  rise  or  to  fall.  AVhen  general 
prices  began  to  fall,  the  Mint  would  sell 
coined  gold  for  bullion  below  the  market 
rate ;  and,  therefore,  more  of  it  would  get 
into  the  bank-reserves  (thus  providing  a  basis 
for  further  credit)  and  into  the  circulation. 
The  quantity  of  exchange  instruments  being 
thus  increased,  while  the  quantity  of  trans- 


CYCLICAL   MOVEMENTS  127 

actions  against  which  they  were  required 
remained  the  same,  an  influence  would  be 
set  up  making  for  a  rise  of  prices.  In  this 
way  the  fall  of  prices,  which  was  threatening 
to  come  about,  would  be  checked.  In  like 
manner,  when  general  prices  began  to  rise,  the 
Mint  would  buy  coined  gold  for  bullion  above 
the  market  rate,  the  supply  of  currency  would 
be  contracted,  and  the  rise  of  prices,  which  was 
threatening  to  come  about,  would  be  checked. 
In  short,  to  employ  Professor  Fisher's  terms, 
the  Mint — or  whatever  Governmental  Author- 
ity might  be  selected  for  the  purpose — ^would 
buy  and  sell  currency  in  terms  of  bullion,  in 
such  a  way  as  to  maintain  "  a  par,  not  with 
a  fixed  weight  of  gold,  but  with  such  a  weight 
of  gold  as  should  have  a  fixed  purchasing 
power."  ^  If  this  plan  could  be  carried  out, 
the  liability  of  general  prices  to  vary  would  be 
greatly  reduced.  For  a  single  country  to 
adopt  it  would,  indeed,  lead  to  difficulties 
in  the  business  of  persons  engaged  in  foreign 
trade,  since,  apart  from  special  arrangements, 
they  might  find  themselves  borrowers  in 
terms  of  one  standard  and  lenders  in  terms  of 
another.  This,  however,  is  not  a  difficulty  of 
very  great  importance ;  for,  after  all,  persons 
living  in  gold-standard  countries  and  trading 
with  silver-standard  countries  are  already  in 
that    position.     And,    if   the   plan    could    be 


128  UNEMPLOYMENT 

introduced  by  the  principal  commercial 
countries  jointly,  by  means  of  an  international 
agreement,  even  this  difficulty  would  dis- 
appear. Such  an  arrangement  would  probably 
necessitate  greater  expense  to  the  community, 
through  the  locking  up  of  its  resources  in 
stores  of  coined  and  uncoined  bullion,  than 
is  involved  in  current  monetary  systems. 
It  is  not  possible  rigidly  to  prove  that  its 
indirect  advantages  in  limiting  the  range  of 
movements  of  the  aggregate  wage-fund  and, 
thereby,  indirectly  lessening  the  average 
volume  of  unemployment,  would  outweigh 
this  extra  expense.  It  seems  probable, 
however,  that  some  nett  benefit  would  result, 
and  it  is  certain  that  some  reduction  would 
be  brought  about  in  the  average  volume  of 
unemployment. 


CHAPTER   IX 

INDUSTRIAL    DISPUTES 

It  will  be  remembered  that  our  definition  \ 
of  unemployment  was  so  drawn  as  to  exclude 
from  the  ranks  of  the  unemployed  those 
persons  who  are  out  of  work  because  they  are 
involved  in  an  industrial  dispute  with  their 
employers.     At  first  sight,  therefore,  it  might 


INDUSTRIAL   DISPUTES  129 

seem  that  the  general  problem  of  industrial 
peace  lies  wholly  outside  the  scope  of  this 
volume.  That,  however,  is  not  in  reality  the 
case.  In  the  monthly  returns  of  Trade 
Unionists  in  receipt  of  unemployment  benefit, 
published  in  the  Labour  Gazette,  workpeople 
who  are  locked  out  or  are  on  strike  are  not,  of 
course,  included.  But,  nevertheless,  those 
parts  of  the  Labour  Gazette's  chart,  which 
relate  to  periods  dominated  by  important 
disputes,  always  show  an  abnormally  high 
general  percentage  of  unemployment.  In 
March  1912,  for  example,  during  the  great 
coal  strike,  the  general  percentage  was  no 
less  than  eleven,  as  against  an  average 
level  for  March  during  the  ten  years  1903-12, 
of  5 1  per  cent.  The  reason  for  this  is  that  a 
stoppage  of  work  in  an  important  industry 
checks,  in  a  two-fold  manner,  the  demand  for 
labour  in  other  industries.  On  the  one  hand, 
by  impoverishing  the  persons  actually  in- 
volved in  the  dispute,  it  checks,  the  demand 
for  the  goods  that  other  industries  make; 
on  the  other  hand,  if  the  industry  in  which 
the  stoppage  has  occurred  is  one  that  furnishes 
a  commodity  or  service  largely  utilized  in  the 
conduct  of  other  industries,  it  checks  the 
supply  to  them  of  what  is,  in  effect,  a  raw 
material  of  their  work.  In  short,  industrial 
disputes  in  one   part  of    the  industrial  field 


130  UNEMPLOYMENT 

involve  contractions  in  the  demand  for  labour 
in  other  parts.  They  do  not,  of  course,  all  do 
this  in  equal  measure.  The  larger  the  range 
they  cover,  and  the  more  fundamental  the 
commodities  or  services  they  affect,  the  more 
marked  is  their  influence.  Coal  and  transport 
service,  for  example,  are  obviously  basal 
goods  subsidiary  to  practically  all  industries, 
and  a  miners'  or  a  railway  servants'  strike, 
will,  therefore,  produce  a  much  larger  in- 
direct effect  upon  the  demand  for  labour  than 
a  cotton  strike  of  the  same  extent  and  dura- 
tion. In  some  degree,  however,  all  industrial 
disputes  are  causes  of  fluctuating  character  in 
the  demand  for  labour,  additional  to  the  more 
general  causes  that  were  discussed  in  the  last 
two  chapters.  Any  arrangements  that  can 
be  devised  for  obviating  their  occurrence  are, 
therefore,  pro  tanto,  palliatives  of  fluctuating 
character,  and,  consequently,  factors  tending 
to  diminish  the  average  volume  of  unemploy- 
ment. Hence,  the  scope  of  this  volume  makes 
necessary  some  brief  discussion  of  what  may 
be  called  the  machinery  of  industrial  peace. 

When  employers  and  employed  are  ranged 
over  against  one  another  in  organized  associa- 
tions, it  is  inevitable  that  differences,  by  which 
peace  is  threatened,  must,  from  time  to  time, 
arise  between  them.  These  differences  may 
be  concerned   either  with  matters  in  them- 


i 


INDUSTRIAL   DISPUTES  131 

selves  trifling,  such  as  the  treatment  accorded 
to  some  small  group  of  workmen,  or  with 
larger  issues  touching  the  general  rate  of 
wages  or  hours  of  labour.  Whether  a  differ- 
ence is  large  or  small,  it  is,  in  the  last  resort, 
a  difference  between  the  two  organizations. 
The  individual  bargaining  of  the  more  pri- 
mitive types  of  industry — types  of  which 
representatives  still  survive — is  superseded  by 
collective  bargaining.  When  this  bargaining 
fails,  just  because  the  bargainers  are  organiza- 
tions and  not  individuals,  the  community  is 
threatened  with  a  stoppage  of  work  on  a 
considerable  scale — a  real  industrial  war  such 
as  was  not  practicable  prior  to  the  days  of 
organization.  By  the  machinery  of  industrial 
peace  is  meant  machinery  designed  to  make 
improbable  the  occurrence  of  this  kind  of 
organized  conflict. 

To  attain  agreement  without  warfare  on 
terms  reasonably  satisfactory  is  obviously, 
when  practicable,  much  to  the  advantage 
alike  of  the  employers  and  of  the  employed  in 
any  industry.  Consequently,  it  is  not  sur- 
prising to  find  that,  in  advanced  industrial 
communities,  the  more  highly  organized  in- 
dustries have  evolved,  as  it  were  from  within, 
exceedingly  efficient  forms  of  peace-promot- 
ing machinery.  The  classical  home  of  these 
wholly  voluntary  arrangements  is  the  United 


132  UNEMPLOYMENT 

Kingdom.  Elaborate  systems  have  been  es- 
tablished for  the  representation  in  conference 
of  employers  and  employed  by  persons  whose 
business  it  is  to  discuss  and,  wherever  possible, 
to  adjust,  any  matter  of  difference  that  arises. 
These  systems  fall  into  two  main  groups,  in 
one  of  which  the  procedure  is  wholly  by  way 
of  conciliation,  no  provision  being  made  for 
the  solution  of  an  ultimate  dead-lock,  while 
in  the  other,  when  conciliation  fails,  resort  is 
had  to  the  arbitrament  of  a  neutral  chairman. 
In  another  work  I  have  examined  at  length 
the  various  forms  which  these  two  systems 
may  assume.  For  the  present  purpose,  how- 
ever, it  will  be  sufficient  to  display  their 
general  character  by  the  description  of  a 
typical  example  of  each  class. 

An  excellent  instance  of  purely  conciliatory 
machinery  is  furnished  by  the  Brooklands 
agreement  of  the  Lancashire  Cotton  Trade. 
Clause  6  of  that  Agreement  provides  :  "  That 
in  future  no  local  Employers'  Association 
nor  the  Federated  Association  of  Employers, 
on  the  one  hand,  nor  any  Trades  Union  or 
Federation  of  Trades  Unions,  on  the  other 
hand,  shall  countenance,  encourage,  or  sup- 
port any  lock-out  or  strike  which  may  arise 
from,  or  be  caused  by,  any  question,  differ- 
ence, or  dispute,  contention,  grievance,  or 
complaint,   with  respect  to  work,  wages,  or 


INDUSTRIAL   DISPUTES  133 

any  other  matter,  unless  and  until  the  same 
has  been  submitted  in  writing  by  the  Secretary 
of  the  local  Employers'  Association  to  the 
Secretary  of  the  local  Trades  Union,  or  by 
the  Secretary  of  the  local  Trades  Union  to 
the  Secretary  of  the  local  Employers'  Associa- 
tion, as  the  case  may  be ;  nor  unless  and  until 
such  Secretaries,  or  a  Committee  consisting  of 
three  representatives  of  the  local  Trades 
Union,  with  their  Secretary,  and  three  of  the 
Employers'  Association  with  their  Secretary, 
shall  have  failed,  after  full  inquiry,  to  settle  and 
arrange  such  question,  difference,  or  dispute, 
contention,  complaint,  or  grievance,  within 
the  space  of  seven  days  from  the  receipt  of 
the  communication  in  writing  aforesaid,  nor 
unless  and  until,  failing  the  last -mentioned 
settlement  or  arrangement,  if  either  of  the 
Secretaries  of  the  local  Trades  Union  or  local 
Employers'  Association  shall  so  deem  it 
advisable,  a  Committee  consisting  of  four 
representatives  of  the  Federated  Association 
of  Employers,  with  their  Secretary,  and  four 
representatives  of  the  Amalgamated  Associa- 
tion of  the  Operatives'  Trades  Unions,  with 
their  Secretary,  shall  have  failed  to  settle  or 
arrange,  as  aforesaid,  within  the  further  space 
of  seven  days  from  the  time  when  such  matter 
was  referred  to  them,  provided  always  that 
the  Secretaries  or  the  Committee  hereinbefore 


134  UNEMPLOYMENT 

mentioned,  as  the  case  may  be,  shall  have 
power  to  extend  or  enlarge  the  said  periods 
of  seven  days  whenever  they  may  deem  it 
expedient  or  desirable  to  do  so."  ^  Agree- 
ments of  a  like  general  character  are  in  force 
between  the  Engineering  Employers'  Federa- 
tion and  the  principal  Engineering  Trade 
Unions,  between  the  Shipbuilding  Employers' 
Federation  and  the  Trade  Unions  of  their 
workpeople,  and  elsewhere. 

The  system  of  conciliation  backed,  in  the 
last  resort,  by  the  arbitrament  of  a  neutral 
chairman  is  exemplified  in  the  agreement 
arrived  at  in  1909  between  the  Coal  Owners 
of  Scotland  and  the  Scottish  Miners'  Federa- 
tion. The  first  clause  provides  :  "  The  Con- 
ciliation Board  shall  be  continued,  with  the 
provision  that  there  shall  be  obligatory  a 
neutral  chairman  (whose  decision  in  cases  of 
difference  shall  be  final  and  binding),  to  be 
selected  by  such  method  as  shall  be  mutually 
agreed  upon  by  the  parties,  and  failing  agree- 
ment, by  the  Speaker  of  the  House  of 
Commons ;  and  the  Board  and  this  agreement 
shall  remain  in  force  until  August  1,  1912; 
and  unless  six  months  before  that  date,  notice 
of  termination  is  given  by  either  party,  it 
shall  remain  in  force  thereafter,  subject  to 
six  months'  notice  of  termination  given  by 
either  party  at  any  time."  ^     Agreements  of 


INDUSTRIAL   DISPUTES  135 

a  like  general  nature,  providing  in  the  last 
resort  for  the  reference  of  differences  to  an 
umpire,  are  found  in  other  parts  of  the  coal 
industry  of  the  United  Kingdom,  in  the  boot 
and  shoe  industry,  and  also,  in  virtue  of  agree- 
ments recently  entered  into,  on  the  principal 
railway  systems  of  the  country. 

Now  each  of  these  two  types  of  arrangement 
is  evidently  capable,  when  worked  in  a  friendly 
spirit,  of  doing  much  to  promote  industrial 
peace.  Neither  type,  however,  is  adequate 
to  prevent  strikes  and  lock-outs  in  all  cases. 
Purely  conciliatory  schemes  may  be  broken 
into  by  war  even  during  the  period  of  their 
currency;  and  schem^es  in  which  provision  is 
made  for  arbitration  may  fail  to  be  renewed 
when  this  period  comes  to  an  end.  Conse- 
quently, of  recent  years,  alike  on  the  Continent 
of  Europe,  in  the  United  Kingdom  and  in  the 
United  States  of  America,  attempts  have  been 
made  by  public  authorities  to  supplement 
private  efforts  after  industrial  peace  by  the 
offer  of  official  mediation  in  cases  where  the 
danger  of  a  rupture  seems  imminent.  The 
idea  is,  not  to  supplant  negotiation  between 
the  parties  directly  concerned,  but  rather  to 
supplement  and  assist  it.  In  some  cases  the 
offer  of  mediation  may  only  be  made  on  the 
request  of  one  or  other  of  the  parties.  Thus, 
a  Belgian  law  of  1887  authorizes  the  estab- 


136  UNEMPLOYMENT 

lishment  locally  of  councils  of  industry  and 
labour,  with  sections  representing  different 
industries,  and  provides  :  "  Whenever  cir- 
cumstances appear  to  demand  it,  at  the  request 
of  either  party,  the  governor  of  the  province, 
the  mayor  of  the  commune,  or  the  president 
of  the  section  for  the  industry  in  which  the 
dispute  occurs  must  convene  that  section, 
which  is  to  endeavour,  by  conciliation,  to 
arrange  a  settlement."  ^  More  frequently, 
however,  mediation  is  authorized  at  the  dis- 
cretion of  the  public  authority,  whether  it  is 
asked  for  by  a  party  to  the  dispute  or  not. 
This  is  the  case  under  the  French  Law  of 
1892  and  under  the  English  Conciliation  Act 
of  1896.  The  latter  Act  provides  :  "  Where 
a  difference  exists,  or  is  apprehended,  between 
an  employer  or  any  class  of  employers  and 
workmen,  or  between  different  classes  of 
workmen,  the  Board  of  Trade  may,  if  they 
think  fit,  exercise  all  or  any  of  the  following 
powers,  namely  :  (1)  inquire  into  the  causes 
and  circumstances  of  the  difference;  (2)  take 
such  steps  as  to  the  Board  may  seem  expedient 
for  the  purpose  of  enabling  the  parties  to  the 
difference  to  meet  together,  by  themselves  or 
their  representatives,  under  the  presidency  of 
a  chairman  mutually  agreed  upon  or  nomi- 
nated by  the  Board  of  Trade  or  by  some 
other  person  or  body,   with  a  view  to  the 


INDUSTRIAL   DISPUTES  137 

amicable  settlement  of  the  difference;  (3)  on 
the  application  of  employers  or  workmen  in- 
terested, and  after  taking  into  consideration 
the  existence  and  adequacy  of  means  available 
for  conciliation  in  the  district  or  trade  and 
the  circumstances  of  the  case,  appoint  a 
person  or  persons  to  act  as  conciliator  or  as 
a  board  of  conciliators,"  In  order  that  no 
indirect  effect  in  checking  the  formation  of 
voluntary  mutual  Boards  may  be  produced, 
the  Act  provides  further  that  the  Board  of 
Trade  shall  carefully  encourage  the  forma- 
tion of  such  Boards  in  industries  with  which 
it  is  brought  into  contact  as  mediator. 

Experience  gives  reason  to  believe  that 
mediation,  skilfully  and  sympathetically  con- 
ducted, can  often  bring  about  the  adjustment 
of  differences  that  would  otherwise  have  led 
to  a  stoppage  of  work.  For  it  affords  an 
opportunity  to  one  side  or  the  other  to  make 
concessions  without  loss  of  dignity;  and  it 
brings  into  prominence  the  fact,  apt  to  be  lost 
sight  of  in  the  heat  of  controversy,  that  the 
general  public,  as  well  as  the  parties  directly 
concerned,  have  an  interest  in  peace.  There 
is,  however,  in  mediation  of  the  kind  so  far 
discussed,  an  obvious  imperfection.  The 
"  good  offices  "  of  the  public  authority  which 
seeks  to  intervene  may  be  refused  by  one  or 
other  of  the  parties,  or  they  may  be  accepted 

E  2 


138  UNEMPLOYMENT 

ai;id  yet  prove  unable  to  bridge  the  difference ; 
and  there  is  then  nothing  further  to  be  done. 
In  view  of  this  defect  in  purely  optional  media- 
tion, the  Dominion  of  Canada  passed  a  law 
in  1907,  which  was  subsequently  copied  by 
the  Legislature  of  the  Transvaal,  providing, 
in  certain  cases,  for  a  more  drastic  form  of 
State  intervention.  The  law,  which  is  en- 
titled the  Industrial  Disputes  Investigation 
Act,  is  not  of  general  application,  but  refers 
exclusively  to  certain  industries,  in  which 
there  is  reason  to  believe  that  a  stoppage  of 
work  would  prove  exceptionally  injurious  to 
the  community  as  a  whole.  The  industries 
covered  are  mining,  transportation,  all  forms 
of  railway  service,  the  supply  of  electricity  or 
other  motive  power,  the  working  of  steam- 
ships, the  telegraph  and  telephone  services, 
gas  supply  and  water  supply.  Practically 
speaking,  the  Act  comes  into  play  in  regard  to 
these  industries  whenever  a  stoppage  of  work 
is  seriously  threatened,  and  it  cannot  be 
successfully  evaded  by  the  joint  refusal  of 
both  parties  to  invoke  it.  The  principal 
provisions  are  the  following.  Thirty  days' 
notice  must  be  given  of  any  proposed  change 
in  the  terms  of  contract  between  employers 
and  employed.  If  a  proposed  change  is  re- 
sisted by  the  other  side,  a  strike  or  lock-out 
in  reference  to  it  is  prohibited  under  penalties. 


I 


INDUSTRIAL   DISPUTES         139 

until  the  dispute  has  been  investigated  by 
a  Board  appointed  by  public  authority,  and 
until  this  Board  has  made  a  report,  together 
with  recommendations  as  to  proper  terms  of 
settlement,  for  publication  by  the  Minister 
of  Labour.  When  the  report  has  been 
published,  there  is  no  obligation  upon  either 
party  to  accept  its  recommendations,  and  a 
stoppage  of  work  may  legally  take  place. 
But,  until  the  report  is  published,  such 
a  stoppage  is  prohibited  by  law  and  renders 
every  individual  taking  part  in  it  liable  to 
a  fine :  in  the  case  of  employers  engaging  in 
a  lock-out,  of  from  100  to  1,000  dollars  per 
day;  in  the  case  of  workpeople  engaging  in 
a  strike,  of  from  10  to  50  dollars  per  day. 
This  law,  it  will  be  noticed,  has  two  distinct 
aspects.  On  the  one  hand,  it  enforces 
delay,  inquiry  and  discussion,  from  which  it 
is  hoped  that  a  settlement  by  agreement  will 
emerge;  on  the  other  hand,  when  such  a 
settlement  is  not  attained,  it  endeavours,  by 
the  publication  of  the  Board's  recommen- 
dations, to  secure  the  acceptance  of  those 
recommendations  through  the  pressure  of 
public  opinion.  Of  these  two  aspects  of 
the  law,  recent  investigators  seem  to  agree 
that  the  former  has  proved  in  practice 
the  more  important.  Mr.  V.  S.  Clark,  the 
reporter   for   the   United   States   Bulletin   of 


140  UNEMPLOYMENT 

Labour,  recently  wrote  :  "  The  government  in 
appointing  Boards,  and  the  most  successful 
Boards  in  conducting  proceedings,  have  inter- 
preted the  Act  as  a  statute  for  conciliation  by 
informal  methods,  looking  towards  a  voluntary 
agreement  between  the  parties  as  its  object."  * 
And  Sir  George  Askwith,  in  his  Report  to  the 
British  Board  of  Trade,  published  in  1913, 
expressed  the  opinion  that  "  the  forwarding 
of  the  spirit  and  intent  of  conciliation  is  the 
more  valuable  portion  of  the  Canadian  Act."  ^ 
The  other  aspect  of  the  law,  is,  however,  not 
without  significance.  It  is  true  that,  as 
regards  trifling  disputes,  in  which  the  general 
public  takes  small  interest,  little  pressure  from 
public  opinion  can  be  evoked,  and  that,  in 
all  disputes,  when  once  the  passion  of  conflict 
has  been  roused,  even  strong  pressure  may 
be  ignored.  But,  when  the  issue  is  one  which 
seriously  affects  the  whole  community  by 
threatening  to  disorganize,  say,  the  railway 
service  or  the  coal  supply,  public  opinion  is  a 
force  which  must  at  least  be  reckoned  with. 
It  is  interesting  to  observe,  for  example,  that 
in  a  number  of  cases,  where  one  or  other  of 
the  parties  has  at  first  refused  to  accept  the 
recommendations  of  a  Board  and  a  strike  or 
lock-out  has  taken  place,  the  dispute  has 
ultimately  been  settled  substantially  on  the 
basis  of  the  Board's  proposals. 


I 


INDUSTRIAL   DISPUTES  141 

Under  the  Canadian  Act,  as  has  already 
been  observed,  if  the  parties  remain  intract- 
able alike  to  efforts  at  conciliation  and 
to  the  suasion  of  opinion,  strikes  and  lock- 
outs can  ultimately  take  place  without  any 
infringement  of  the  law.  It  has  been  left 
to  the  Australasian  colonies  to  introduce  a 
type  of  legislation  under  which,  not  only 
does  a  publicly  appointed  Board  recommend 
terms  for  the  settlement  of  differences,  but 
the  terms  so  recommended  are  legally  bind- 
ing, and  a  strike  or  lock-out  against  them 
is  a  punishable  offence.  This  type  of  legis- 
lation, when  fully  developed,  closes  that 
loop-hole  for  a  stoppage  of  work,  which  the 
Canadian  law  leaves  open.  Generally  speak- 
ing, some  effort  is  made  not  unduly  to  dis- 
courage settlement  by  discussion  and  concilia- 
tion, but  the  principal  stress  is  laid  on  prevent- 
ing resort  to  a  strike  or  lock-out  in  those 
difficult  cases  where  less  heroic  expedients 
have  failed.  In  New  Zealand,  indeed,  con- 
trary to  a  common  opinion,  a  small  loop-hole 
is  still  left.  For  the  compulsory  arbitration 
law  of  that  colony  applies  only  to  Unions  of 
workpeople  registered  under  the  law.  In  the 
corresponding  laws  of  New  South  Wales  and 
Western  Australia,  however,  there  is  no  such 
reservation,  and  the  same  remark  holds  true 
of  the  Commonwealth  Law  relating  to  differ- 


^ 


142  UNEMPLOYjVIENT 

ences  extending  over  more  than  one  State. 
In  every  case  the  prohibition  against  strikes 
and  lock-out  is  sanctioned  by  a  money  fine. 
In  New  Zealand  individual  employers  and 
Unions  of  workpeople  who  break  the  law  are 
liable  to  a  penalty  of  £500,  and,  in  case  a 
Union  of  workpeople  fails  to  pay,  its  individual 
members  are  liable  to  a  fine  of  £10,  which 
may  be  collected  by  means  of  a  writ  of  attach- 
ment of  wages.  Western  Australia,  like 
New  Zealand,  relies  wholly  on  money  penalties. 
But  the  New  South  Wales  law  provides  also 
for  the  imprisonment  of  persons  who  fail  to 
pay  their  fines,  and  the  Comm.onwealth  Law 
provides  for  imprisonment,  without  the  option 
of  a  fine,  in  the  case  of  a  second  offence.  It 
is  obvious,  of  course,  that  no  legal  prohibition 
and  no  provision  of  penalties  can  ensure  that 
the  prohibited  action  will  never  be  performed. 
No  surprise  need,  therefore,  be  caused  by 
the  circumstance  that,  in  the  Australasian 
colonies,  in  spite  of  their  coercive  laws, 
stoppages  of  work,  on  account  of  industrial 
disputes,  have,  in  fact,  occurred.  This  is  only 
to  be  expected,  just  as  it  is  only  to  be  expected 
that  thefts  and  murders  will  occasionally  take 
place  in  defiance  of  laws  penalizing  those  acts. 
The  advocates  of  compulsory  arbitration  laws 
do  not  deny  this.  Their  claim  is,  not  that 
these  laws  can   create   "  a  country  without 


INDUSTRIAL   DISPUTES  143 

strikes ",  but  that,  by  invoking  a  pressure 
more  direct  and  potent  than  that  of  un- 
organized opinion,  they  can  render  stoppages 
of  work  less  frequent  than  they  would  other- 
wise be. 

This  brief  account  of  four  principal  types 
of  machinery  designed  to  promote  industrial 
peace — voluntary  boards,  mediation,  com- 
pulsory investigation  and  report,  and  com- 
pulsory arbitration — has  necessarily  been 
exceedingly  cursory  and  incomplete.  In 
endeavouring  to  estimate  the  comparative 
advantages  of  the  different  types,  we  may 
take  it  for  granted  that  voluntary  Boards 
and  the  proffer,  on  critical  occasions,  of  the 
good  offices  of  a  public  authority  are  welcomed 
as  socially  desirable  by  practically  all  students 
of  these  matters.  There  is,  however,  con- 
siderable difference  of  opinion  as  to  whether 
or  not  the  best  interests  of  the  community  are 
served  by  the  institution,  in  addition  to  these 
things,  of  legislation  on  the  Canadian  or  on 
the  Australasian  model.  A  very  important 
objection  often  urged  against  compulsory 
investigation  and  compulsory  arbitration  alike 
is  that  they  necessarily  tend,  in  greater  or  less 
degree,  to  check  the  up-building  of  voluntary 
systems  of  conciliation  and  arbitration  by  the 
joint  efforts  of  employers  and  employed -in  the 
various  industries.     These  systems,  it  is  urged, 


144  UNEMPLOYMENT 

are  valuable,  not  merely  as  agencies  of  peace, 
but  also  as  agencies  for  promoting  mutual 
sympathy  and  understanding  between  em- 
ployers and  workpeople.  Peace  enforced  by 
external  pressure  is,  doubtless,  still  peace  and, 
§p  far,  a  social  good.  But  peace  so  attained 
may  be  associated  with  feelings  of  bitterness 
and  hostility,  and  is  much  inferior  to  that 
peace  and  goodwill  which,  had  conflict  not 
been  forcibly  suppressed,  might  before  long 
have  emerged  from  its  ashes.  This  argument 
is  a  general  argument  against  all  forms  of 
authoritative  intervention  imposed  from  with- 
out in  differences  between  employers  and 
employed.  Obviously,  however,  if  such  inter- 
vention is  associated  with  deliberate  efforts 
to  promote  the  development  of  conciliatory 
machinery,  and  if,  furthermore,  it  is  restricted 
to  cases  in  which  stoppages  of  a  specially 
injurious  character  are  threatened,  the  argu- 
ment loses  much  of  its  force.  Against  the 
drastic  form  of  intervention  provided  for  in 
Australasian  legislation  there  is,  however,  from 
the  standpoint  of  the  United  Kingdom,  and 
probably  also  of  the  United  States  of  America, 
another  and  more  cogent  argument.  Legisla- 
tion, to  which  the  opinion  of  large  masses  of 
the  population  likely  to  be  affected  is  strongly 
opposed,  is  apt  to  prove  at  once  difficult  of 
enforcement   and   injurious   to   that   general 


INDUSTRIAL  DISPUTES  145 

respect  for  law,  which  it  is  to  the  interest  of 
every  community  to  maintain.  In  England 
and  in  the  United  States  anything  in  the 
nature  of  compulsory  arbitration  is  at  present 
looked  upon  by  employers  and  employed 
alike  with  very  great  distrust.  To  introduce 
it  at  a  single  stride  in  the  face  of  this  general 
sentiment  would  be  both  impracticable  and 
unwise.  The  case  is,  however,  different  with 
compulsory  investigation  and  enforced  post- 
ponement of  stoppages  of  work,  as  exemplified 
in  the  Canadian  Act.  The  present  writer's 
view  upon  this  matter  was  published  in  1903, 
four  years  before  that  Act  was  passed,  and 
subsequent  events  have  shown  no  cause  for 
modifying  it.  "  The  next  step,"  it  was 
argued,  "  in  a  campaign  on  behalf  of  industrial 
peace  should  be  the  promulgation  of  some 
scheme  for  the  coercive  reference,  at  the 
discretion  of  a  Minister,  of  the  differences 
arising  in  certain  specified  industries  to  a 
Court,  whose  awards  should  depend  on  the 
sanction  of  informal  opinion.  A  scheme  of 
this  kind  has,  in  America,  secured  the  power- 
ful advocacy  of  the  Anthracite  Coal  Strike 
Committee,  and  may  be  said,  in  England  also, 
to  be  within  the  bounds  of  practical  politics. 
Its  enactment  would  be  in  conformity  with 
the  experimental  traditions  of  British  legisla- 
tion.    It    would    represent    a    policy,    safe- 


146  UNEMPLOYMENT 

guarded,  on  the  one  hand,  against  the  danger 
of  grave  disaster,  and  opening  up,  on  the  other, 
possibilities  of  future  development  and  a 
gradual  advance  towards  a  better  condition 
of  things."  ^  In  this  better  condition  of 
things  a  diminished  average  volume  of  un- 
employment would  constitute  one  not  unim- 
portant element. 


CHAPTER   X 

THE    MOBILITY   OF   LABOUR 

In  the  course  of  the  seventh  and  eighth 
chapters  it  was  shown  that,  while  some  of  the 
causes  of  industrial  fluctuations  that  are  at 
work  (those  causes,  namely,  that  are  connected 
with  variations  in  the  seasons,  the  climate  and 
the  mood  of  business  men),  tend  to  promote 
everywhere  fluctuations  in  the  same  direction, 
others  are  responsible  for  upward  fluctuations 
in  some  industries,  or  parts  of  industries, 
accompanied  by  downward  fluctuations  in 
others.  In  these  circumstances  it  is  plain  that, 
in  so  far  as  workpeople  are  free  to  move  from 
points  of  contracted  demand  to  points  of 
expanded  demand,  an  employer  in  good 
times   is   not   bound   wholly   to   satisfy   his 


THE   MOBILITY   OF   LABOUR     147 

demand  for  labour  by  drawing  upon  a  body 
of  workmen  permanently  attached  to  his 
factory,  and  always  waiting  for  calls  from 
it.  He  may  reckon  also  on  finding  available 
hands  temporarily  thrown  out  of  employ- 
ment by  a  synchronous  depression  in  some 
other  part  of  the  industrial  field.  If  the 
conditions  were  such  that  the  demand  for 
labour  in  the  aggregate  were  stationary, 
booms  in  some  places  and  occupations  exactly 
balancing  depressions  in  others,  and  if  the 
mobility  of  labour  from  any  one  point  to  any 
other  point  were  absolutely  perfect,  he  could 
reckon  on  always  obtaining  in  this  way 
whatever  hands  he  might  require.  Conse- 
quently, that  necessity  for  the  maintenance  of 
a  system  of  wage-rates  calculated  to  retain 
a  reserve  of  labour  in  excess  of  the  numbers 
needed  in  bad  times,  upon  which  stress  was 
laid  at  the  beginning  of  the  seventh  chapter, 
would  no  longer  exist,  and  unemployment 
would,  therefore,  entirely  disappear.  Of 
course,  in  the  actual  world,  it  is  very  far  from 
being  the  fact,  either  that  the  demand  for 
labour  in  the  aggregate  is  stationary  or  that 
the  mobility  of  labour  is  perfect.  The  hypo- 
thetical case,  the  consequences  of  which  have 
just  been  traced,  has,  therefore,  merely  an 
illustrative  value.  Nevertheless,  contempla- 
tion of  it  enables  us  to  see  that  the  tendency 


148  UNEMPLOYMENT 

there  manifested  to  the  full  is  also  manifested 
in  part  in  the  actual  world.  Every  improve- 
ment in  the  mobility  of  labour  between  parts 
of  the  industrial  field,  in  some  of  which  the 
demand  for  labour  is  liable  to  rise  at  the  same 
time  that  it  falls  in  others,  diminishes  the 
reserves  of  labour  assembled  in  each  part, 
and,  in  this  way,  pro  tanto,  diminishes  the 
volume  of  unemployment.  It  may,  indeed,  be 
objected  that  improved  mobility,  by  increasing 
the  number  of  men  actually  moving  in  search 
of  work  to  a  greater  extent  than  it  increases 
the  speed  of  their  movement,  might  con- 
ceivably increase  the  number  of  persons  in 
transit  between  jobs.  Reflection,  however, 
shows  that,  unless  improved  mobility  reacts 
to  diminish  the  plasticity  of  wage-rates,  this 
increase,  if  it  occurs,  is  an  increase  in  one 
part  of  unemployment  at  the  expense,  not  of 
employment,  but  only  of  another  part  of 
unemployment;  for,  after  all,  the  men  in 
movement  are  a  portion  of,  and  not  additional 
to,  the  reserves  attached  to  the  various 
divisions  of  the  industrial  field.  It  is  true 
that  the  case  would  be  different  if  important 
reactions  on  the  plasticity  of  wage-rates 
occurred,  because,  in  that  event,  many  men, 
who  otherwise  would  have  accepted  work 
where  they  were  at  reduced  rates,  might  set 
off  wandering    in    search    of    it,  thus    creat- 


THE   MOBILITY   OF   LABOUR     149 

ing  a  real  addition  to  the  numbers  of  the 
unemployed,  sufficient,  in  conceivable  cir- 
cumstances, to  outweigh  the  accompanying 
contraction.  This  theoretical  possibility,  how- 
ever, is  one,  the  realization  of  which  in  practice 
appears  too  improbable  to  require  serious 
consideration.  The  general  proposition  may, 
therefore,  be  taken  as  established  that,  other 
things  being  equal,  the  more  perfect  is  the 
mobility  of  labour,  as  between  points  where 
the  demands  for  labour  are  liable  to  move 
in  opposite  directions,  the  smaller  the  average 
volume  of  unemployment  is  likely  to  be. 
Furthermore,  though,  no  doubt,  divergent 
movements  of  demand  are  more  probable 
between  certain  trades  or  parts  of  trades  than 
between  others,  yet  they  are  liable  to  occur 
on  occasions  between  any  two  parts  of  the 
industrial  field.  Consequently,  the  above 
proposition  may  be  extended  so  as  to  apply 
to  mobility  in  general.  Two  further  remarks 
should,  however,  be  added.  The  first  is  that 
improvements  in  mobility  check  unemploy- 
ment most  markedly,  when  they  are  made 
between  points  at  which  the  fluctuations  of 
demand  for  labour  tend  definitely  to  com- 
pensate one  another.  An  example  may  be 
found  in  the  relation  between  gas-works, 
whose  products  are  chiefly  wanted  in  the 
dark  winter  months,  and  brick-works,  which 


150  UNEMPLOYMENT 

are  naturally  most  active  in  summer,  when 
the  long  days  facilitate  building  operations. 
The  second  remark  is  that  such  improve- 
ments are  likely  to  have  a  larger  effect 
when  they  occur  between  firms  in  different 
industries  than  when  they  occur  between 
firms  in  the  same  industry,  because,  in  the 
former  case,  a  larger  proportion  of  the  varia- 
tions in  individual  demands  are  likely  to 
be  in  opposite  directions.  This  last  con- 
sideration suggests  that  a  specially  bene- 
ficial effect  on  unemployment  will  be  exerted 
by  the  modern  tendency — to  be  discussed  on 
p.  165 — towards  specialization  to  particular 
jobs  (utilized  in  many  trades)  in  place  of 
specialization  to  particular  trades.  These 
points  are,  however,  of  secondary  moment. 
The  following  pages,  therefore,  will  be  devoted 
to  a  discussion  of  mobility  in  general  rather 
than  of  any  special  forms  of  it.  A  start 
will  be  made  by  considering  more  closely  than 
is  usually  done  the  precise  meaning  which  the 
term  mobility  ought  to  bear. 

This  term,  as  is  well  kno-svn,  is  sometimes 
used  to  signify  mere  fluidity,  or  capacity  to 
flow  in  any  direction  under  the  influence  of 
a  stimulus.  That  is  not  the  meaning  which 
must  be  given  to  it  for  the  purpose  of  the 
present  discussion.  Mobility  means,  rather, 
tendency  to  flow  in  the  direction  which  en- 


THE  MOBILITY  OF  LABOUR    151 

lightened  self-interest  commends,  or,  to  employ 
Mr,  Beveridge's  formula,  not  mere  fluidity, 
but  organized  and  intelligent  fluidity.^  We, 
therefore,  part  company  with  the  popular 
view,  which  finds  the  influences  determining 
mobility  in  the  presence  of  absence  of 
"  impediments  to  mobility,"  which  embraces 
among  these  impediments  at  once  false 
judgments  about  economic  self-interest  and 
various  costs  of  movement,  and  which  de- 
clares that  mobility  is  necessarily  increased 
by  the  removal  or  mitigation  of  any  of  these 
impediments.  For,  evidently,  on  the  defini- 
tion of  mobility  just  set  out,  if  judgment  as 
to  where  self-interest  lies  is  wrong,  mobility, 
so  far  from  being  increased,  is  actually 
diminished  by  any  reduction  of  the  physical 
costs  of  movement.  The  lessening  of  ignor- 
ance and  error  always  improves  mobility, 
but  the  lessening  of  the  physical  costs  of 
movement  only  improves  it,  provided  that 
ignorance  and  error  are  already,  in  the  main, 
overcome.  It  is,  thus,  in  many  cases,  an 
open  question  whether  a  mere  cheapening  of 
the  costs  of  travel  to  workpeople,  unaccom- 
panied by  any  other  change,  involves  im- 
proved mobility;  but  it  is  never  an  open 
question  whether  such  cheapening,  coupled 
with  intelligent  direction  to  specific  vacancies, 
has  that  effect.     That  this  important  point  is 


152  UNEMPLOYMENT 

now  winning  general  recognition  is  suggested 
by  the  fact  that,  in  England,  travelling 
benefit,  originally  paid  out  by  Trade  Unions 
indiscriminately  to  all  members  in  search  of 
work,  is  now  mainly  used  to  enable  selected 
members  to  reach  places  in  which  work  has 
actually  been  found  for  them;  by  the  fact 
that  the  British  Labour  Exchanges  Act 
contains  a  clause  permitting  the  Exchanges, 
subject  to  the  approval  of  the  Treasury,  to 
authorize  advances,  by  way  of  loan,  towards 
the  expenses  of  workpeople  travelling  to 
definite  situations;  and,  finally,  by  the  fact 
that,  in  Germany,  the  Exchanges  provide 
cheap  railway  tickets,  not  to  work-seekers 
in  general,  but  to  those  only  for  whom  they 
have  found  definite  situations.  Let  us  then 
consider,  in  the  first  place,  what  provision  is 
made  in  modern  civilized  States  to  guide  the 
movement  of  workpeople  in  right  directions. 
This  investigation  can  be  conducted  at  the 
same  time  with  regard  to  movement  from  one 
place  to  another  within  a  given  occupation 
and  to  movement  from  one  occupation  to 
another. 

Other  things  being  equal,  it  is  clear  that 
the  hindrances  to  mobility  imposed  by  ignor- 
ance are  greatest  when  the  workpeople  in 
one  part  of  the  industrial  field  have  no  know- 
ledge whatever  of  the  conditions  prevailing 


THE   MOBILITY   OF   LABOUR       153 

in  other  parts.  For  if,  in  these  circumstances, 
they  were  to  set  out  to  look  for  work  else- 
where— a  step  which  their  ignorance  will 
make  them  hesitate  long  to  undertake — they 
would  wander  aimlessly  round  to  the  firms 
that  have  not,  as  well  as  to  those  that  have, 
vacancies,  engaging  themselves  in  a  weary 
"  tramp  from  one  firm  to  another,  in  the 
attempt  to  discover,  by  actual  application 
to  one  after  another,  which  of  them  wants 
another  hand."  ^  As  a  rule,  however,  at  all 
events  in  the  United  Kingdom,  ignorance  is 
somewhat  less  complete  than  this.  Some 
sort  of  general  information  is  available  as  to 
the  comparative  state  of  the  demand  for 
labour  in  various  places  and  occupations. 
Such  information  can  be  obtained  through 
newspaper  advertisements,  the  talk  of  friends 
and  the  reports  of  local  conditions  collected 
by  Trade  Unions.  Mr.  Dearie  has  an  interest- 
ing account  of  the  development  of  these 
methods  in  the  London  building  trades : 
"  That  system  of  mutual  assistance  in  getting 
jobs  which  a  man  and  his  mates  render  to 
one  another  is  extended  and  carried  out  in  a 
more  systematic  manner  by  means  of  the 
vacant  books  of  the  Trade  Unions.  Each 
man,  as  he  becomes  unemployed,  writes  his 
name  in  the  vacant  book  at  the  local  branch 
office  or  meeting-place ;   and  then  every  other 


154  UNEMPLOYMENT 

member  of  the  branch — and  branches  ordi- 
narily number  from  20  up  to  400  or  500 — is 
looking  for  a  job  for  him,  or,  to  be  more 
exact,  all  members  of  the  branch  are  on  the 
look-out  for  vacancies  to  clear  the  vacant 
book.  Obligations  are  imposed  on  all  members 
to  inform  the  branch  secretary  when  men 
are  wanted  anywhere;  and,  whilst  in  some 
Unions — for  instance,  the  Amalgamated  Car- 
penters and  Joiners — a  small  sum,  generally 
6d.  per  member,  is  given  to  any  one  who 
will  take  unemployed  men  off  the  books,  a 
heavy  fine  is  imposed  on  any  one  known  to 
be  giving  preference  to  non-Union  men. 
The  usual  thing  is  to  inform  the  secretary 
where  men  are,  or  are  likely  to  be,  wanted, 
and  the  latter  is  bound  to  inform  out-of-work 
members  where  best  to  look  for  jobs."  ^  Of 
late  years,  in  England,  still  further  information 
of  the  kind,  in  a  more  widely  accessible  form, 
has  been  furnished  officially  through  the 
Labour  Gazette.  The  less  developed  Labour 
Exchanges  also  act  as  powerful  informing 
agencies.  They  extend  the  inquiry  work 
carried  on  by  Trade  Unions,  and  "  enable 
the  workman  to  ascertain,  by  calling  at  an 
office  in  his  own  neighbourhood,  what  in- 
quiries have  been  made  for  his  own  kind  of 
labour  all  over  London."  *  When  the  Ex- 
changes of  different  towns  are  interconnected, 


THE   MOBILITY   OF   LABOUR     155 

the  workman  is  brought  into  contact  with 
a  still  wider  range  of  information.  Thus,  in 
Germany  :  "  In  order  to  ensure  the  mobility 
of  labour,  it  is  considered  to  be  of  importance 
that  the  agencies  for  obtaining  employment 
in  the  different  parts  of  the  German  Empire 
should  be  linked  up  by  a  system  of  inter- 
communication. This  system  is  provided  by 
the  Federations  of  Labour  Registries.  .  .  . 
In  the  Grand  Duchy  of  Baden  all  are  tele- 
phonically  in  communication,  and  want  or 
superfluity  of  labour  in  one  place  is  immedi- 
ately known  in  all  the  others."  ^  In  Bavaria 
the  system  is  extended  by  the  publication 
of  lists  of  vacancies  to  villages  in  which  no 
Exchange  exists.^  In  England  the  develop- 
ment from  the  isolated  to  the  connected  form 
has  been  consummated  in  the  recent  Labour 
Exchanges  Act.  It  is  evident  that  an  organ- 
ized system  of  this  character  may  serve  as 
a  powerful  instrument  for  removing  the 
hindrances  to  mobility  that  arise  out  of  the 
ignorance  of  workpeople  temporarily  out  of 
employment. 

It  might  seem  at  first  sight  that  when,  over 
a  given  field,  a  thoroughly  organized  system 
for  conveying  information  as  to  the  state 
of  demand  throughout  the  field  has  been 
set  up,  no  further  step  in  the  direction  of 
facilitating  mobility  by  dissipating  ignorance 


156  UNEMPLOYMENT 

remains  to  be  taken.  That,  however,  is  an 
erroneous  view.  Information  that  at  the 
present  moment  there  are  two  vacancies  open 
in  the  works  of  a  particular  firm  is  not  equiva- 
lent to  information  that  the  vacancies  will 
be  open  when  the  men,  to  whom  this  fact  has 
been  narrated,  arrive  there  in  search  of  work. 
The  ignorance  that  obstructs  mobility  may, 
therefore,  be  still  further  reduced  if,  in  place 
of  centres  of  information  as  to  the  vacancies 
at  the  time  available  in  different  establish- 
ments or  departments  of  establishments, 
there  are  instituted  centres  at  which  hands 
can  be  definitely  engaged  for  these  different 
establishments  or  departments.  When  that 
is  done,  workmen  are  informed,  not  merely 
that  there  are  so  many  vacancies  now  in 
certain  places,  but  also  that  these  vacancies 
will  still  be  available  when  they  arrive  in 
quest  of  them.  This  is  the  essential  contribu- 
tion to  mobility  made  by  the  establishment 
of  a  common  centre  of  engagement  for  all 
departments  of  the  London  and  India  docks, 
and,  over  a  wider  field,  by  the  establishment  of 
the  modern  highly  organized  form  of  Labour 
Exchange.  It  does  not,  indeed,  greatly 
signify  whether  the  men,  whom  officials  at 
an  Exchange  select  for  particular  firms,  are 
engaged  by  them  absolutely  or  are  sent  to 
the  firms  on  approval ;  for,  generally  speaking. 


THE   MOBILITY   OF   LABOUR     157 

men  so  sent  will,  in  fact,  be  accepted.  It  does 
signify,  however,  and  is,  indeed,  the  root  of 
the  whole  matter,  that  definite  men  shall  be 
chosen  out  and  sent  to  firms  who  have  notified 
definite  vacancies  to  be  filled  through  the 
Exchange.  It  is  not  the  creation  of  Labour 
Exchanges  that  is  of  value  from  the  present 
point  of  view,  but  the  use  of  them  as  a  com- 
mon agency  of  engagement  by  a  number  of 
firms,  which  would  otherwise  act  as  separate 
and  independent  centres  of  demand. 

So  much  being  understood,  it  is  obvious 
that  the  resultant  favourable  influence  upon 
mobility  will  be  greater,  the  larger  is  the 
proportion  of  the  vacancies  occurring  in  any 
locality  that  are  filled  through  the  agency  of 
the  local  Exchange.  This  proportion,  under 
a  voluntary  arrangement,  will  be  larger,  the 
more  attractive  Exchanges  are  made  to 
employers.  Experience  seems  to  show  that, 
if  they  are  to  win  an  extensive  clientele,  they 
should  be  public — not  run  as  a  private 
speculation  by  possibly  fraudulent  private 
persons  '^ — that  they  should  be  managed 
jointly  by  representatives  of  employers  and 
employed;  that  they  should  take  no  notice 
of  strikes  and  lock-outs,  but  simply  allow 
each  side  to  post  up  a  notice  in  the  Exchange 
to  the  effect  that  a  stoppage  of  work  exists 
in  such  and  such  an  establishment ;   that  they 


158  UNEMPLOYIVIENT 

should  be  wholly  separated  from  anything  in 
the  nature  of  charitable  relief — association 
with  such  relief  both  keeps  away  the  best 
men  from  fear  of  injuring  their  reputation 
as  workers  and  makes  employers  unwilling  to 
apply  to  the  Exchanges — ;  that  they  should 
be  given  prestige  by  municipal  or  State 
authorization,  and  should  be  advertised 
further,  so  far  as  practicable,  by  being  made 
the  exclusive  agency  for  the  engagement  of 
Avorkpeople  employed  by  public  authorities. 
The  question  whether  fees  should  be  charged 
to  the  workpeople  making  use  of  them 
is  debatable.  The  French  law  of  1904 
forbids  even  private  Exchanges  to  make 
such  charges.  But  the  Transvaal  Indigency 
Commission  points  out  that  "  the  charging 
of  fees  is  by  far  the  most  effective  method 
of  keeping  away  those  who  are  not  really 
in  search  of  work"^;  and,  if  such  persons 
are  driven  off,  the  Exchanges  will  un- 
doubtedly prove  more  attractive  to  employ- 
ers. It  is,  further,  open  to  the  State,  if  it 
chooses,  to  increase  the  proportion  of  vacancies 
that  are  filled  through  Exchanges  by  some 
form  of  legal  suasion.  A  step  in  this  direction 
would  be  taken,  if  the  registration  at  an 
Exchange  of  all  workpeople  out  of  employ- 
ment were  made  obligatory ;  for,  if  that  were 
done,  the  inducement  to  emploj^ers  to  resort 


THE   MOBILITY   OF  LABOUR     159 

to  these  centres  of  engagement  would  be 
increased.  Such  a  step  is  suggested  by  the 
Poor  Law  Commissioners  in  these  terms : 
"  We  think  that,  if,  as  will  be  proposed 
subsequently,  the  State  contributes  to  the 
unemployed  benefit  paid  to  each  Trade 
Unionist,  the  State  might  well  make  it  a 
condition  of  such  payment  that  the  Trade 
Unionist,  when  out  of  work,  should  register 
his  name  and  report  himself  to  the  local 
Labour  Exchange,  in  addition  (if  it  is  so 
desired)  to  entering  his  name  in  the  vacant 
book  of  his  Union.  If  the  State  supports 
and  encourages  the  Trade  Unions,  it  seems 
only  reasonable  that  the  Trade  Unions  should 
assist  the  State  by  supporting  the  national 
and  nationally  needed  Labour  Exchanges."  ^ 
A  more  drastic  arrangement  would  be  to  pro- 
vide by  law  that  employers  and  workmen 
should  never  enter  into  a  contract  of  work 
without  reference  to  an  Exchange.  This  plan, 
which  already  rules  in  England  in  respect 
of  sailors  in  the  mercantile  marine,  is  re- 
commended for  general  adoption  by  Mr. 
Beveridge.  Fearing  that  the  effectiveness  of 
Labour  Exchanges  might  be  weakened  by 
lack  of  support  from  employers,  he  boldly 
claims  complete  compulsion.  "  If  the  thing 
cannot  be  done  voluntarily,  it  will  have  to  be 
done,  and  will  be  done,  compulsorily.     A  new 


160  UNEMPLOYMENT 

clause  in  the  Factory  Code,  e.g.  that  no  man 
should  be  engaged  for  less  than  a  week  or  a 
month  unless  he  were  taken  from  a  recog- 
nized  Labour  Exchange,  would  be  a  legitimate 
and  unobjectionable  extension  of  the  accepted 
principle  that  the  State  may  and  must 
proscribe  conditions  of  employment  which 
are  disastrous  to  the  souls  and  bodies  of  its 
citizens."  ^°  The  British  National  Insurance 
Act,  without  going  so  far  as  this,  offers  the 
inducement  of  what  is,  in  effect,  a  slightly 
reduced  charge  in  respect  of  the  insurance 
of  their  workmen  both  against  sickness  and, 
when  this  form  of  insurance  is  provided, 
against  unemployment,  to  those  employers 
who  engage  their  hands  through  Labour 
Exchanges.il  ^W  these  devices,  in  so  far 
as  they  foster  a  more  extended  use  of  Labour 
Exchanges,  tend,  other  things  being  equal, 
to  break  down  ignorance  of  the  conditions 
of  the  demand  for  labour,  and,  hence,  to 
foster  mobility.  It  must  be  observed,  how- 
ever, that  the  extent  to  which  they  do  this, 
and,  therefore,  the  benefit  to  be  expected 
from  their  introduction,  is  likely  to  be 
smaller  in  a  country  already  provided  with 
a  widely-extended  system  of  Trade  Unions 
than  in  one  where  Unionism  is  comparatively 
little  developed.  This  point  is  brought  out 
by  the  fact  that,  while  in  Germany  the  Labour 


THE   MOBILITY   OF   LABOUR     161 

Exchanges  are  as  effective  in  finding  places 
for  skilled  men  as  for  unskilled  men,  in  the 
United  Kingdom  their  usefulness  has  been 
confined  in  the  main,  at  all  events  as  regards 
the  finding  of  work  in  the  immediate  neigh- 
bourhood, to  the  latter  class,  among  whom 
no  strong  Union  organization  exists.^^ 

When  knowledge  has  been  so  far  developed 
that  whatever  desire  for  movement  there  is 
is  desire  according  to  knowledge,  mobility  is 
greater  or  less,  according  as  those  who  desire 
to  move,  whether  from  one  place  to  another 
or  from  one  trade  to  another,  are  subjected 
to  smaller  or  larger  obstacles.  These  obstacles 
may  assume  any  number  of  different  forms. 
For  example,  until  the  end  of  the  eighteenth 
century  "  place  mobility "  was  seriously 
obstructed  by  the  law  of  settlement,  which, 
in  order  to  prevent  workpeople  born  in  one 
part  of  the  country  from  becoming  "  charge- 
able "  on  the  rates  of  another  part,  greatly 
limited  their  right  to  move.  "  It  was  often 
more  difficult,"  Adam  Smith  wrote,  "  for  a 
poor  man  to  pass  the  artificial  boundary  of 
a  parish  than  an  arm  of  the  sea  or  a  ridge  of 
high  mountains."  Again,  at  the  present  day, 
mobility  between  occupations  is,  in  some 
cases,  considerably  impeded  by  the  demarca- 
tion rules  of  a  number  of  Trade  Unions — 
rules    which    attempt    to    reserve    particular 

F 


162  UNEMPLOYMENT 

jobs  to  workers  at  a  particular  trade,  and 
forbid,  under  threat  of  a  strike,  that  they 
should  be  undertaken  by  other  tradesmen. 
A  bricklayer,  for  example,  is  not  allowed  by 
his  Union  to  do  stone-mason's  work,  or  a 
pattern-maker  to  do  joiner's  work.  For  the 
most  part,  however,  in  the  modern  industrial 
system,  the  impediments  which  hinder  move- 
mient  to  those  who  desire  it,  whether  as  be- 
tween places  or  between  occupations,  may  be 
grouped  together  under  the  general  head  of 
"  costs  of  movement." 

In  this  connection  we  have  first  to  observe 
that,  from  the  present  standpoint,  "  the  costs 
of  movement  between  any  two  centres  of 
demand  A  and  B,  are  not  necessarily  the 
actual  costs,  but  may  be  a  lesser  amount, 
which  we  may  call  the  '  virtual '  costs,  and 
which  consist  of  the  sum  of  the  costs  of  move- 
ment along  each  of  the  separate  stages  that 
lie  between  A  and  B.  When  the  costs  in 
view  are  merely  costs  of  physical  transport, 
this  point  is  not,  indeed,  likely  to  be  import- 
ant. For,  in  general,  long-distance  journeys 
are  cheaper  per  mile  than  short-distance 
journeys,  and,  therefore,  there  will  not  exist 
a  virtual  cost  smaller  than  the  actual  cost. 
If,  however,  the  costs  in  view  are  those 
arising  out  of  the  need  of  learning  particular 
accomplishments,  the  case  is  quite  different. 


THE   MOBILITY   OF   LABOUR     163 

The  costs  of  transport,  in  this  sense,  between 
the  occupation  of  agricultural  labourer  and 
that  of  master  manufacturer  may  be  infinite ; 
but  those  between  agricultural  labourer  and 
petty  shopkeeper,  between  petty  shopkeeper 
and  large  shopkeeper,  between  large  shop- 
keeper and  departmental  manager,  between 
departmental  manager  and  general  manager, 
between  general  manager  and  master  manu- 
facturer, may  all  be  small.  The  same  class 
of  consideration  is  applicable,  when  the  cost 
is  due  to  such  things  as  the  subjective  burden 
of  leaving  one's  home  and  settling  elsewhere. 
Probably  this  cost,  in  respect  of  a  movement 
of  a  thousand  miles,  greatly  exceeds  that 
involved  in  two  hundred  movements  of  five 
miles  each.  So  far  as  frontier  inhabitants 
between  two  countries  are,  in  general,  familiar 
with  both  languages,  the  obstruction  due  to 
difference  of  language  is  similarly  diminished 
in  efficacy.  A  good  illustration  of  the  point 
I  am  here  enforcing  is  afforded  by  the  follow- 
ing account  of  mediaeval  France.  '  If  Lyons 
had  need  of  workmen,  it  called  upon  Chalon- 
sur-Saone,  which  supplied  them.  The  void 
made  at  Chalon  was  filled  by  men  drawn 
from  Auxerre.  Auxerre,  finding  that  less 
work  v/as  offered  than  was  required,  called 
to  its  aid  Sens,  which,  at  need,  fell  back  upon 
Paris.  .  .  .  Thus,    all     the     different    places 


164  UNEMPLOYMENT 

were  stirred  at  once  by  a  demand  for  labour, 
however  distant  that  might  be,  just  as  a 
regiment  in  column,  marching  in  one  piece 
and  only  advancing  a  few  paces,  would  be.' 
This  class  of  consideration  is  obviously  of 
great  importance."  ^^ 

We  may  now  look  at  the  costs  of  move- 
ment somewhat  more  in  detail.  As  between 
two  given  places,  we  perceive  at  once  that 
they  include,  not  only  the  sheer  money  cost 
of  travel  to  a  workman  who  contemplates 
moving,  but  also  the  wrench  involved  in 
leaving  his  friends  and  the  district  with  which 
he  is  familiar.  The  money  cost,  of  course, 
becomes  less  in  any  country,  as  the  means  of 
communication  are  developed,  and  transport, 
therefore,  becomes  cheaper.  The  other  ele- 
ment of  cost,  in  like  manner,  becomes  less 
as  the  speed  of  travel  is  increased,  because, 
as  this  happens,  it  becomes  easier  for  work- 
people to  change  the  seat  of  their  work 
without  having  at  the  same  time  to  change 
their  homes.  As  between  two  given  occupa- 
tions, the  costs  of  movement  become  less,  the 
more  closely  industrial  progress  causes  the 
operations  required  in  one  occupation  to 
resemble  those  required  in  another.  At  the 
present  time  there  appears  to  be  a  distinct 
tendency  in  this  direction.  M.  de  Rousiers 
writes :     "  More    and    more    the    constantly 


THE   MOBILITY   OF   LABOUR     165 

developing  applications  of  machinery  are 
approximating  the  type  of  the  mechanic  to 
that  of  the  shop  assistant.  The  shop  assistant 
passes  readily  from  one  kind  of  commerce 
to  another,  from  drapery  to  provisions,  from 
fancy  goods  to  furniture,  so  much  so  that, 
at  the  present  time,  retail  shopkeeping,  in 
the  hands  of  men  of  superior  ability,  is  no 
longer  confined  to  one  or  another  single 
branch,  but  takes  on  the  form  of  the  large 
general  store.  Manufacture  cannot  yet  pre- 
tend to  so  large  a  range,  but,  just  as  an 
assistant  passes  easily  from  one  counter  to 
another,  so  the  workman  passes  easily  from 
the  supervision  of  one  machine  to  the  super- 
vision of  another  machine,  from  the  loom  to 
boot-making,  from  paper-making  to  spinning, 
and  so  forth."  "  This  development  implies 
that  specialized  technical  skill  is  coming  to 
play  a  smaller  part  in  industrial  operations, 
relatively  to  general  capacity,  than  used  to 
be  the  case;  and  this  means  that  the  costs 
of  the  new  training  required  to  enable  a 
workman  to  move  from  one  occupation  to 
another  are  becoming  smaller.  So  far,  we 
have  spoken  of  movement  between  places 
and  movement  between  occupations  separ- 
ately. But,  of  course,  in  the  concrete,  move- 
ment from  one  occupation  to  another  may 
well  necessitate,  at  the  same  time,  movement 


166  UNEMPLOYMENT 

from  one  place  to  another.  Hence,  the  ag- 
gregate costs  of  movement  from  one  occupa- 
tion to  another  are  kept  low,  when  kindred 
occupations,  in  which  the  fluctuations  of 
demand  for  labour  more  or  less  compensate 
one  another,  are  carried  on  in  the  same  neigh- 
bourhood; and  the  reduction  of  costs  is 
still  greater  when  these  occupations  are  con- 
ducted in  the  same  establishment.  It  is, 
therefore,  especially  interesting  to  read  in 
a  recent  Board  of  Trade  Report :  "  The  more 
competent  and  thoughtful  employers  en- 
deavour to  overcome  the  natural  fluctuations 
of  the  seasons  by  superior  organization. 
With  the  manufacture  of  jam  and  marmalade 
they  combine  the  making  of  sweets  and  the 
potting  of  meats.  They  thus  occupy  the 
time  of  the  majority  of  their  employees.  An 
artificial  florist,  employing  over  two  hundred 
girls  and  women  in  a  trade  which  occupies  six 
months  of  the  year,  has  introduced  a  second 
trade,  the  preparing  of  quills  for  hat -trimming, 
and  now  the  workers  are  emploj'ed  all  the 
year  round.  In  Luton,  where  the  staple 
trade  is  straw-hat  making,  and  where  work  is 
always  slack  during  six  months  of  the  year, 
felt -hat  making  has  been  introduced;  and  it 
is  now  very  usual  to  find  the  two  trades 
carried  on  by  the  same  firm,  employing  the 
same  workpeople  at  different  periods  of  the 


THE   MOBILITY   OF   LABOUR     167 

year."  ^^  The  adoption  by  enlightened  em- 
ployers of  this  policy — a  policy  which  is  in 
many  cases  to  their  own  economic  advantage 
— ^necessarily  reduces  the  costs  of  movement, 
and  thereby  augments  mobility. 

Before  this  chapter  is  concluded  something 
must  be  said  of  another  matter  which,  so 
far,  has  been,  of  set  purpose,  ignored.  The 
effects  of  improved  knowledge  concerning  the 
demand  for  labour,  and  of  diminished  costs 
of  movement  from  place  to  place  and  from 
trade  to  trade  have  been  discussed  without 
reference  to  the  method  by  which  the  im- 
proved knowledge  may  have  been  won,  or 
the  costs  of  movement  reduced.  And,  indeed, 
so  far  as  the  influence  exerted  on  the  average 
volume  of  unemploj^ment  is  concerned,  it  is 
a  matter  of  indifference  whether  these  changes 
are  brought  about,  as  it  were,  automatically 
by  the  progress  of  ideas,  or  whether  informa- 
tion and  the  means  of  movement  are  supplied 
more  cheaply  to  individual  workpeople,  not 
because  they  have  become  cheaper  to  produce, 
but  because  a  part  of  the  cost  of  them  is 
borne  on  the  shoulders  of  other  persons. 
These  two  forms  of  cheapening,  however, 
though  they  react  in  the  same  way  upon 
unemployment,  do  not  react  in  the  same 
way  upon  other  elements  of  social  welfare. 
Cheapening    to    the    workpeople    consequent 


168  UNEMPLOYMENT 

upon  a  real  cheapening  of  production  is  un- 
diluted gain.  Cheapening  of  the  other  sort, 
however,  implies  that  a  greater  quantity  of 
resources  is  invested  in  the  work  of  securing 
knowledge  and  effecting  movement  than 
would  normally  "be  devoted  to  that  work. 
It  implies,  in  fact,  that  a  particular  form  of 
investment  is  being  stimulated  by  means 
of  a  bounty.  Economic  analysis,  however, 
warns  us  that,  as  a  general  rule,  bounties  lead 
to  economic  waste.  "  There  is  not  a  little 
reason  to  suspect  that  such  waste  actually 
occurs,  to  some  extent,  as  a  result  of  the 
system  of  artificially  cheapened  workmen's 
tickets,  that  has  been  introduced  on  the 
Belgian  railways.  The  following  passage  from 
Dr.  Mahaim's  interesting  monograph  is 
strongly  suggestive  of  this  conclusion  :  '  A 
villa  had  to  be  built  in  the  suburbs  of  Liege, 
where,  assuredly,  there  was  no  lack  of  labour. 
The  contract  was  secured  by  a  builder  from 
Nivelles.  He  employed  exclusively  Brabant 
workpeople,  who  came  in,  some  every  day  and 
some  every  Monday.  Not  one  iota  of  the 
general  labour  required  was  executed  by 
Liege  men.'  There  are  other  passages  of  like 
effect,  suggesting  that  the  bounty — ^for  such 
in  effect  it  is — which  the  State  pays  upon 
workmen's  tickets  tempts  employers  in  one 
place,   when  they  are  given  work  to  do  in 


THE  MOBILITY  OF  LABOUR    169 

another,  to  have  workmen  transported  there, 
despite  the  fact  that  suitable  labour  could  be 
found  for  the  job  in  the  place  where  it  has  to 
be  done.  This  leads  to  something  very  like 
a  double  transference  of  gold,  instead  of  the 
use  of  bills  of  exchange,  in  the  settlement  of 
the  accounts  of  international  trade — a  process 
that  is  necessarily  wasteful  to  the  community 
as  a  whole,  whether  or  no  the  fiscal  arrange- 
ment in  vogue  makes  it  wasteful  to  the 
individuals  undertaking  it.  The  presumption 
thus  established  against  the  grant  of  a  bounty 
to  the  industry  of  promoting  mobility  is, 
however,  merely  a  special  case  of  the  general 
presumption  against  the  grant  of  a  bounty  to 
any  industry.  In  the  present  instance,  as  in 
all  other  instances,  it  may  be  overthrown,  if 
there  is  reason  to  believe  that,  in  the  absence 
of  a  bounty,  investment  in  the  industry  in 
question  would  not  be  carried  far  enough 
to  yield  the  maximum  social  advantage."  ^^ 
As  regards  the  industry  of  promoting  the 
mobility  of  workpeople,  partly  because  that 
industry  is  one  whose  product  it  is  difficult 
to  sell  satisfactorily  for  fees,  there  does  seem 
reason  to  believe  this.  Consequently,  up  to 
a  point,  it  is  probable  that  the  expenditure 
of  public  money  in  improving  mobility  would 
not  merely  lessen  unemployment,  but  would, 
at  the  same  time,  increase  welfare  as  a  whole. 

F  2 


170  UNEMPLOYMENT 

It  is  necessary,  however,  for  the  State  to 
watch  this  expenditure  carefully;  for,  if  it 
is  carried  too  far,  the  benefit  which  it  yields 
in  the  matter  of  unemployment  will  be  at  the 
expense  of  more  than  equivalent  injury 
elsewhere. 


CHAPTER  XI 

DIRECT   STATE   ACTION   TO    LESSEN 
UNEMPLOYMENT 

In  the  course  of  the  preceding  chapters  in- 
dications have  been  given,  from  time  to  time, 
of  various  ways  in  which  action  by  public 
authorities  might  indirectly  serve  to  lessen 
the  average  volume  of  unemployment.  Refer- 
ence was  made,  for  example,  to  the  possibilities, 
under  this  head,  of  an  improved  policy  as 
regards  education,  of  a  modification  of  the 
currency  system,  and  of  the  development  of 
an  organized  network  of  Labour  Exchanges. 
It  may  well  be  held,  however,  that  remedial 
action  by  public  authorities  need  not  be 
confined  to  these  indirect  measures,  but  that 
there  is  room  also  for  direct  attack  through 
policies  deliberately  designed  to  lessen  the 
fluctuating  character  of  the  demand  for  labour. 
It,  therefore,  becomes  important  to  inquire 


DIRECT   STATE   ACTION         171 

what    success    may    be    expected    to    attend 
action  of  this  character. 

At  the  outset  of  the  inquiry  a  preHminary 
objection  has  to  be  overcome.  It  is  sometimes 
urged  that  the  aggregate  wage-fund  at  any 
moment  is  rigidly  fixed,  and  that,  therefore, 
though  it  is,  of  course,  possible  in  various 
ways  to  increase  the  demand  for  labour  in  any 
particular  part  of  the  industrial  field,  this  can 
only  be  done  at  the  expense  of  lessening,  in  a 
corresponding  degree,  the  demand  in  other 
parts.  This  is  equally  true,  it  is  maintained, 
whether  the  increase  in  demand  in  the 
particular  part  is  brought  about  by  m.eans  of 
a  bounty  to  private  employers,  or  through 
the  employment  of  labour  by  the  public 
authorities  themselves.  The  argument  in 
this  latter  aspect  is  forcibly  expressed  in  the 
report  of  the  Transvaal  Indigency  Commission. 
"  Wealth,"  the  Commission  declares,  "  is  the 
only  source  from  which  wages  are  paid,  and 
the  State  must  levy  taxation  in  order  to  pay 
wages  to  its  workmen.  When,  therefore,  a 
Government  gives  work  to  the  unemployed, 
it  is  simply  transferring  wage-giving  from  the 
individual  to  itself.  It  is  diminishing  employ- 
ment with  one  hand,  while  it  increases  it  with 
the  other.  It  takes  work  from  people  em- 
ployed by  private  individuals,  and  gives  it 
to  people  selected  by  the  State."  ^     Now,  if 


172  UNEMPLOYMENT 

the  general  type  of  reasoning,  of  which  the 
above  sentences  are  a  particular  example,  is 
valid,  it  is  clearly  impossible  for  any  govern- 
mental authority,  either  by  direct  action  or 
indirectly  through  fiscal  devices,  to  lessen  the 
fluctuating  character  of  the  demand  for  labour 
as  a  whole.  Such  reasoning,  however,  is  not 
valid.  It  is,  indeed,  true  that  the  State  is 
unable,  by  action  of  the  kind  contemplated, 
to  increase  the  demand  for  labour  on  the 
whole  on  the  average  of  good  and  bad  times 
together.  This  consideration  is,  furthermore, 
exceedingly  important;  for  it  is  fatal  to  all 
schemes  designed  to  diminish  unemployment 
by  the  devotion  of  a  fixed  annual  sum  to  the 
conduct  of  new  industries,  such  as  planting 
forests  or  building  military  roads.  But  it  is 
not  true  that  the  State  is  unable  to  increase 
the  demand  for  labour  in  bad  times  at  the 
cost  of  diminishing  it  to  a  more  or  less  corre- 
sponding extent  in  good  times.  To  establish 
this  point,  it  is  necessary  to  look  behind  the 
machinery  of  money  payments  to  the  real 
transactions  which  these  payments  represent 
and  facilitate.  When  this  is  done,  we  per- 
ceive that,  in  any  country  at  any  moment, 
there  is  flowing  into  warehouses  and  shops 
from  various  centres  of  production  a  continu- 
ous stream  of  goods.  At  the  same  time  there 
are  flowing  out  two  other  continuous  streams, 


DIRECT   STATE   ACTION  173 

embodying,  respectively,  the  goods  about  to 
be  consumed  by  the  propertied  classes  and 
the  goods  about  to  be  handed  over  by 
members  of  these  classes  as  payments  to 
induce  Labour  to  perform  further  services. 
The  argument  of  the  Transvaal  Commission, 
and  other  like  arguments,  imply  that  the 
volume  of  the  stream  flowing  out  towards 
Labour  is  rigidly  determined  by  the  volume 
of  the  stream  flowing  into  warehouses  and 
shops.  In  reality,  however,  it  depends,  not 
only  upon  this,  but  also  upon  the  volume  of 
the  other  outflowing  stream,  together  with 
the  depth  of  the  reservoir  of  goods  standing 
in  store  between  the  inflowing  and  the  out- 
flowing streams.  To  simplify  the  discussion, 
let  us  suppose — a  supposition  which  tells 
against  the  case  I  am  endeavouring  to 
establish  —  that  the  consumption  of  the 
propertied  classes  is  absolutely  constant.  In 
this  case,  if  commodities  passed  immediately 
from  the  seat  of  their  production  to  the  hands 
of  consumers,  so  that  there  was  no  reservoir 
of  stored  goods  intermediate  between  the 
two,  no  means  would  exist  by  which  govern- 
mental or  any  other  authority  could  modify 
the  stream  flowing  out  towards  Labour,  when 
once  the  volume  of  the  inflowing  stream  was 
given.  But,  since,  as  a  matter  of  fact,  there 
is  always  and  necessarily  a  very  large  inter- 


174  UNEMPLOYMENT 

mediate  fund  of  goods  temporarily  in  store, 
such  means  do  exist.  If  it  is  desired  to  make 
the  outflowing  stream  more  constant  than 
it  would  normally  be,  all  that  the  public 
authority  needs  to  do  is  to  borrow  (in  effect) 
from  warehouses  and  shops,  when  the  demand 
for  labour  is  low,  resources  with  which  to 
increase  the  demand,  and  to  pay  back  its 
borrowings  at  the  expense  of  the  outflowing 
stream  when  the  demand  again  becomes 
high.  Of  course,  it  is  true  that,  if  the  method 
adopted  is  literally  the  raising  of  a  loan,  with 
which  to  employ  labour  in  bad  times,  a  part 
of  the  funds  obtained  will  come  from  resources 
that  would  otherwise  have  been  flowing  out  in 
the  purchase  of  labour  by  private  employers ; 
but  it  is  also  true  that  another  part  will  come 
from  resources  that  would  have  been  in  store. 
Of  a  million  pounds  borrowed  by  governmental 
authorities  in  bad  times — either  directly,  or 
through  private  firms  stimulated  to  such  bor- 
rowing by  bounties — and  expended  in  the 
employment  of  labour,  not  all  represents  a  net 
addition  to  the  demand  for  labour.  A  part 
of  the  million  pounds,  however — and  there  is 
reason  to  believe,  a  not  inconsiderable  part — 
does  represent  a  net  addition;  and  this  is 
all  that  is  required  to  overthrow  arguments 
of  the  kind  employed  by  the  Transvaal 
Indigency  Commission. 


DIRECT   STATE   ACTION  175 

The  above  preliminary  objection  being  dis- 
posed of,  we  may  next  observe  that  no  essential 
distinction  exists  between  cases,  in  which 
public  authorities  manipulate  the  demand 
for  any  sort  of  labour  by  modifying  the 
conduct  of  industries  directly  related  to 
themselves,  and  cases  in  which,  by  means  of 
bounties  and  taxes,  they  modify  the  conduct 
of  industries  in  which  private  persons  are 
exclusively  concerned.  No  doubt,  it  may 
sometimes  be  practically  easier  for  them 
to  take  action  in  respect  of  industries  where 
they  are  themselves  the  employers,  or  where, 
through  the  placing  of  government  orders, 
their  demand  plays  an  especially  important 
part,  than  it  is  in  other  cases.  This,  however, 
is  a  secondary  and  subordinate  distinction. 
The  essential  distinction  is  that  between  cases 
in  which  manipulation  is  introduced,  respec- 
tively, from  the  side  of  production  and  from 
the  side  of  consumption.  It  is  necessary 
to  examine  successively  these  two  general 
cases. 

To  take  first  the  case  of  manipulation  from 
the  side  of  production,  let  us  suppose  that 
a  public  authority,  either  directly  or  by 
fiscal  interference,  increases  in  bad  times,  and 
decreases  in  good  times,  the  quantity  of  labour 
employed  in  some  of  the  centres  engaged  in 
the  manufacture  of  some  given  commodity. 


176  UNEMPLOYMENT 

The  effect  on  the  average  volume  of  un- 
employment can  be  analysed  as  follows.  If 
the  commodity  is  one  that  is  rapidly  perish- 
able, so  that  the  consumption  of  it  must 
take  place,  if  at  all,  immediately  after  it  is 
made,  the  quantity  of  it,  which  is  offered 
for  sale  by  the  centres  affected,  is  exactly 
the  same  as  the  quantity  that  is  produced. 
In  this  case,  therefore,  manipulation,  so  intro- 
duced as  to  increase  the  output  of  these 
centres  in  bad  times,  must  indirectly  lower 
prices,  and  thus  check  output  in  the  other 
centres  belonging  to  the  industry.  "When 
the  centres  whose  output  has  been  artificially 
enlarged  constitute  only  a  small  part  of  all 
the  centres  engaged,  it  can  be  shown  that  the 
diminution  of  output  in  the  other  centres 
will  be  almost  as  large  as  the  initial  increase. 
An  analogous  conclusion  holds  good  of  manipu- 
lation introduced  to  decrease  the  output  of 
the  centres  affected  in  good  times.  It  follows, 
therefore,  that  public  action,  which  proceeds 
by  steadying  production  in  a  small  number  of 
centres  dealing  with  perishable  goods,  creates 
indirectly  almost  as  much  unsteadiness  of 
output  and,  hence,  of  demand  for  labour  as 
it  directly  destroys.  Not  much,  therefore, 
is  to  be  hoped  from  action  of  this  kind  as  a 
means  to  lessening  the  average  volume  of 
unemployment.     The   prospect   is   somewhat 


DIRECT   STATE   ACTION  177 

better  when  we  have  to  do  with  an  indus- 
try engaged  in  the  production  of  a  durable 
commodity.  In  this  case,  the  changes  in 
quantity  of  output  that  are  induced  in  the 
centres  affected  are,  in  general,  greater  than 
the  changes  in  the  quantity  offered  for  sale. 
When  output  is  artificially  encouraged,  a 
part  of  the  extra  output  goes  into  store ;  and, 
when  it  is  discouraged,  a  part  of  the  contrac- 
tion represents  what  would  have  gone  into 
store.  But  it  is  only  the  difference  in  output 
offered  on  the  market  that  reacts  on  price, 
and,  hence,  on  the  output  of  other  centres. 
It  follows  that  the  increased  steadiness  of 
demand  for  labour  introduced  into  the  manipu- 
lated centres  is  less  nearly  cancelled  by  in- 
creased unsteadiness  in  competing  centres, 
when  the  goods  made  by  them  can  be  stored 
than  when  they  are  immediately  perishable. 
Whether  they  are  perishable  or  not,  however, 
there  must,  when  only  a  small  proportion 
of  the  centres  of  production  that  make  up 
a  market  are  manipulated,  be  a  very  consider- 
able amount  of  cancelling.  For  example, 
"  convincing  testimony  was  given  on  behalf 
of  the  Firewood  Trade  Association  that  the 
adoption  of  wood-chopping  as  the  task  at 
the  Labour  Homes  of  the  Church  Army, 
as  well  as  in  many  workhouses,  had  defin- 
itely resulted  in  ruining  independent  wood- 


178  UNEMPLOYMENT 

chopping  firms,  in  throwing  many  men  out  of 
employment  and  in  reducing  some  to  actual 
pauperism."  ^  The  amount  of  cancelling  grad- 
ually diminishes,  as  the  body  of  producers, 
whose  output  is  manipulated,  becomes  a 
larger  proportion  of  those  embraced  in  a 
market ;  and,  if  manipulation  covered  the 
whole  market,  there  would  be  no  cancelling 
at  all.  The  prospect  of  effective  action 
against  unemployment  by  manipulation  intro- 
duced from  the  side  of  production  is,  therefore, 
better,  the  more  widely  it  is  found  feasible 
for  the  act  of  manipulation  to  be  extended.  ' 
At  the  present  time,  however,  there  appears  : 
to  be  little  scope  for  the  adoption  of  any  really 
effective  policy  along  these  lines. 

We  now  turn  to  manipulation  introduced 
from  the  side  of  consumption.  Here,  as 
before,  it  is  obvious  that  the  manipulation 
can  take  place  equally  well  in  respect  of 
demands  not  associated  with  public  authori- 
ties— by  resort  to  bounties  and  taxes — and 
in  respect  of  demands  that  directly  emanate 
from  them.  As  a  matter  of  practice,  this 
form  of  manipulation,  where  it  has  occurred 
at  all,  has  usually  been  introduced  in  connec- 
tion with  the  latter  sort  of  demands.  In  the 
following  section,  however,  in  order  to  keep 
prominent  the  fact  that  the  argument  has 
a  wider  reach  than  this,  I  shall  speak,  not  of 


DIRECT   STATE   ACTION  179 

the  demand  of  the  pubHc  authority,  but  of 
the  demand  manipulated  by  the  pubHc  author- 
ity. For  the  development  of  the  argument, 
we  may  conveniently  distinguish  between 
cases,  in  which  this  demand  necessarily  mani- 
fests itself  at  irregular  intervals,  and  cases 
in  which  there  is  no  necessity  of  that  kind. 
In  both  sets  of  cases,  we  may  assume — what 
is  evidently  in  general  the  fact — that  the 
labour  affected  by  the  demand  manipulated 
by  the  public  authority  does  not  include  all 
the  labour  of  a  given  type,  but  that  there 
is  also  a  considerable  mass  of  such  labour 
engaged  elsewhere. 

Boards  of  Guardians  in  ordering  stores, 
the  Board  of  Admiralty  in  ordering  ships, 
the  War  Office  in  calling  up  portions  of  the 
Special  Reserve  for  training,  and  Municipali- 
ties in  carrying  through  certain  kinds  of 
occasional  work — such  as  the  making  of  road 
surfaces — exercise  a  demand,  which  necessarily 
operates,  not  smoothly  and  continuously, 
but,  as  it  were,  occasionally,  in  fairly  large 
jets.  To  a  certain  extent,  the  public  authori- 
ties concerned  are  free  to  choose  at  what 
times  these  separate  intermittent  masses  of 
demand  shall  be  brought  into  play.  No 
doubt,  in  some  circumstances,  the  moment 
of  their  incidence  is  practically  dictated  by 
influences   which   it   is   impossible   to   resist. 


180  UNEMPLOYTHENT 

When  a  war  threatens,  for  example,  there  can 
be  no  question  of  allowing  care  for  the  steadi- 
ness of  employment  to  affect  the  time  at 
which  the  Admiralty  order  ships.  In  many 
cases,  however,  it  makes  very  little  difference, 
either  to  public  convenience  or  to  the  public 
purse,  in  what  way  the  time-incidence  of 
these  irregular  demands  is  arranged.  In 
such  cases,  it  is  open  to  public  authorities 
considerably  to  lessen  the  fluctuating  char- 
acter of  the  demand  for  labour  by  dovetailing 
irregular  public  demands  into  the  interstices 
of  the  demands  of  private  industry.  A  policy 
of  this  kind  "  is  embodied  in  the  proposal  of 
the  recent  British  Poor  Law  Commission 
concerning  irregular  municipal  work.  They 
write  :  *  So  far  as  it  may  be  inevitable  to 
employ  occasionally  other  than  their  own 
regular  workers,  or  to  place  contracts,  we 
think  that  it  may  be  desirable  for  public 
authorities  to  arrange  such  irregular  work 
so  that,  if  possible,  it  comes  upon  the 
labour  market  at  a  time  when  ordinary 
regular  work  is  slack.  This  point  has  been 
well  put  by  Professor  Chapman,  who  suggests 
that,  so  far  as  the  public  authorities'  demand 
for  labour  fluctuates,  it  is  desirable  to  liberate 
such  demand  from  the  influences  of  good  and 
bad  trade  and  seasonality,  and  then  deliber- 
ately to  attempt  to  make  it  vary  inversely 


DIRECT   STATE   ACTION  181 

with  the  demand  in  the  open  market.'  The 
policy,  thus  sketched  out,  is  sometimes 
stimulated  by  the  Central  Government, 
through  a  judicious  employment  of  grants  in 
aid  to  municipalities  in  times  of  depression."  ^ 
There  can  be  no  doubt  that  it  is  a  policy 
capable,  if  reasonably  executed,  of  appreci- 
ably diminishing  the  average  volume  of  un- 
employment. 

We  may  now  pass  to  cases  in  which  the 
demand  manipulated  by  a  public  authority 
is  not  one  that  recurs  at  intervals,  but  is 
more  or  less  continuous  in  character.  In  these 
cases  we  have  to  investigate  the  effect  of 
action  on  the  part  of  the  authority  designed 
to  render  its  demand  more  stable  than  it 
would  naturally  be.  Generally  speaking,  the 
fluctuations,  which  normally  occur  in  the 
public  demand,  are  not  likely  to  be  directly 
compensatory  to  those  which  occur  in  other 
demands  for  the  commodity  concerned.  It 
is,  therefore,  probable  that  increased  steadi- 
ness in  the  manipulated  demand  will  carry 
with  it  increased  steadiness  in  the  manipu- 
lated and  the  other  demands  combined. 
When  this  happens,  unemployment  must  be 
diminished.  Hence  it  follows,  in  general, 
that  a  policy  designed  to  do  away  with, 
or  to  diminish,  such  fluctuations  as  would 
normally  occur  in  the  demand  manipulated 


182  UNEMPLOYMENT 

by  a  public  authority  for  the  things  made 
by  any  class  of  labour  will  probably  dimi- 
nish the  volume  of  unemployment.  Public 
authorities,  like  private  persons,  but  in  a 
much  higher  degree,  have  it  in  their  power 
to  lessen  unemployment  by  making  a  slight 
sacrifice  of  convenience  or  of  money  interest, 
in  order  to  render  their  demands  steadier  than 
they  tend,  in  the  ordinary  course,  to  be. 

The  above  conclusion  is  clear  and  free 
from  doubt.  There  arises  out  of  it,  how- 
ever, a  suggestion  involving  more  difficult 
considerations.  Steadiness  in  the  demand 
manipulated  by  public  authorities  is  admit- 
tedly better,  from  the  standpoint  of  unemploy- 
ment, than  the  kind  of  unsteadiness  which 
the  free  play  of  economic  forces  would  gener- 
ally set  up.  But,  it  may  be  asked,  would  not 
a  still  more  favourable  result  be  attained  if 
the  demand  manipulated  by  the  public 
authority,  in  place  of  being  made  steady, 
were  made  to  fluctuate  in  a  manner  definitely 
compensatory  to  the  fluctuations  of  other 
demands  for  the  commodity  concerned.  If, 
for  example,  the  number  of  men  of  any  given 
class  required  in  private  industry  varies 
between  100,000  and  150,000,  is  it  not  better 
that  the  demand  of  public  authorities  for 
such  men  should  be  high  when  the  private 
demand    is    depressed    and    low    when    that 


DIRECT   STATE   ACTION  183 

demand  is  expanded,  rather  than  that  it 
should  be  identical  in  both  periods  ?  The 
view  that  this  is  the  case — that  a  policy  of 
deliberately  introducing  into  the  demand  of 
public  authorities  fluctuations  complemen- 
tary to  those  occurring  in  private  industry 
is  desirable — is  strongly  maintained,  among 
others,  by  the  Minority  of  the  recent  British 
Commission  on  the  Poor  Laws.  So  con- 
vinced, indeed,  are  these  writers  of  the  justice 
of  their  opinion  that  they  base  upon  it,  with 
many  words  of  praise  and  promise,  a  highly 
elaborated  scheme  of  national  policy.  "  We 
think,"  they  declare,  "  that  there  can  be  no 
doubt  that,  out  of  the  150  millions  sterling 
annually  expended  by  the  National  and  Local 
Authorities  on  works  and  services,  it  would 
be  possible  to  earmark  at  least  four  millions 
a  year,  as  not  to  be  undertaken  equally, 
year  by  year,  as  a  matter  of  course;  but  to 
be  undertaken,  out  of  loan,  on  a  ten  years' 
programme,  at  unequal  annual  rates,  to  the 
extent  even  of  ten  or  fifteen  millions  in  a 
single  year,  at  those  periods  when  the  National 
Labour  Exchange  reported  that  the  number 
of  able-bodied  applicants,  for  whom  no  places 
could  be  found  anywhere  within  the  United 
Kingdom,  was  rising  above  the  normal  level. 
When  this  report  was  made  by  the  Minister 
responsible  for  the  National  Labour  Exchange 


184  UNEMPLOYMENT 

— whenever,  for  instance,  the  Percentage 
Unemployment  Index  as  now  calculated  rose 
above  four — the  various  Government  Depart- 
ments would  recur  to  their  ten  years'  pro- 
gramme of  capital  outlay;  the  Admiralty 
would  put  in  hand  a  special  battleship,  and 
augment  its  stock  of  guns  and  projectiles; 
the  War  Office  would  give  orders  for  some  of 
the  additional  barracks  that  are  always  being 
needed,  and  would  further  replenish  its  mul- 
tifarious stores;  the  Office  of  Works  would 
get  on  more  quickly  with  its  perpetual  task  i 
of  erecting  new  post  offices  and  other  Govern- 
ment buildings,  and  of  renewing  the  worn-out 
furniture;  the  Post  Office  would  proceed  at 
three  or  four  times  its  accustomed  rate  with 
the  extension  of  the  telegraph  and  telephone 
to  every  village  in  the  kingdom;  even  the 
Stationery  Office  would  get  on  two  or  three 
times  as  fast  as  usual  with  the  printing  of  the 
volumes  of  the  Historical  Manuscripts  Com- 
mission, and  the  publication  of  the  national 
archives."  *  In  this  passage  it  is  taken  for 
granted  that  the  introduction  into  the  demand 
of  public  authorities  of  fluctuations  compensa- 
tory to  those  occurring  in  private  demands 
would  necessarily  lessen  the  volume  of  un- 
employment. As  a  matter  of  fact,  however, 
that  result  is  not  a  necessary  one.  When 
labour    is    completely    mobile    between    the 


DIRECT   STATE   ACTION  185 

centre  of  demand  manipulated  by  the  public 
authority  and  that  occupied  by  the  private 
firms  whose  fluctuations  are  to  be  compensated, 
it  must,  indeed,  come  about.  When,  on  the 
other  hand,  as  between  these  several  centres, 
labour  is  completely  immobile,  the  reverse  of 
it  must  come  about.  There  will  be  no  less 
unemployment  than  there  would  have  been 
among  the  men  attached  to  private  industries, 
and  there  will  be  more  than  there  would  have 
been  among  those  attached  to  public  in- 
dustries— for  the  reason,  as  argued  previously, 
that  the  artificially  enlarged  fluctuations 
will  attach  to  these  industries  an  artificially 
enlarged  number  of  men,  for  all  of  whom  there 
cannot  be  permanent  work.  In  real  life,  of 
course,  labour  is  nowhere  either  completely 
mobile  or  completely  immobile,  but  possesses 
always  some  intermediate  degree  of  mobility, 
the  precise  intensity  of  which  is  different  in 
different  places  and  occupations.  We  may, 
however,  lay  it  down,  in  a  general  way,  that 
the  introduction  of  compensatory  fluctuations 
is  likely  to  lessen  unemployment  when  mo- 
bility is  considerable,  but  to  increase  it  when 
mobility  is  slight.  For  example,  if  a  munici- 
pal enterprise,  employing  a  number  of  men 
precisely  similar  to  those  employed  on  the 
same  class  of  work  by  private  firms  inside  its 
borders,  makes  its  demand  fluctuate  inversely 


186  UNEMPLOYMENT 

with  that  of  those  firms,  unemployment  is 
practically  certain  to  be  lessened.  If,  how- 
ever, a  State  Department  makes  the  demand 
for  labour  employed  on  the  national  forests 
fluctuate  inversely  with  the  demand  of  city 
industries  employing  artisans  and  mechanics, 
there  is  great  likelihood  that  unemployment 
will  be  increased.  It  should  be  added,  of 
course,  that  cases  in  which,  as  things  stand 
at  present,  the  introduction  of  compensatory 
fluctuations  would  do  harm,  may  become,  if 
mobility  is  improved,  cases  in  which  it  would 
do  good.  The  presumption  in  favour  of  the 
Minority  Commissioners'  policy  in  all  its  appli- 
cations tends,  therefore,  to  become  stronger, 
as  Labour  Exchanges  and  other  instruments 
of  mobility  are  developed  and  rendered  more 
efficient. 

Hitherto,  attention  has  been  directed  to 
forms  of  manipulation,  whether  introduced 
upon  the  side  of  production  or  of  consumption, 
the  character  of  whose  effects  upon  unemploy- 
ment is  only  open  to  doubt  in  one  particular. 
There  remains  for  discussion,  however,  a 
more  complex  form  of  manipulation,  the 
consequences  of  which  cannot  be  traced  with 
equal  certainty.  I  refer  to  legal  limitation 
of  the  permitted  hours  of  overtime.  At  first 
sight,  it  would  seem  that  such  limitation 
must  necessarily   lessen   the   volume   of  un- 


DIRECT   STATE   ACTION  187 

employment,  at  all  events  when  applied  to 
industries  other  than  those  producing  immedi- 
ately perishable  commodities.  For  does  not 
the  restriction  of  overtime  in  boom  periods 
lead  indirectly,  in  the  preceding  bad  times,  to 
increased  making  for  stock,  and  to  increased 
purchases  by  consumers  in  anticipation  of 
future  needs  ?  The  latter  point  is  well  illus- 
trated by  the  following  passage  from  the 
Minority  Report  of  the  Royal  Commission 
on  the  Poor  Laws  :  "  The  variations  in  the 
consumer's  pressure  can  be  made  much  less 
extreme  by  means  of  a  legal  limitation  of  the 
hours  of  labour.  When  the  hours  of  cotton- 
operatives  were  settled  by  the  individual 
mill-owner,  cotton-spinning  and  weaving  were 
extreme  instances  of  seasonal  trades;  and 
the  manufacturer  was  unable  to  resist  the  cus- 
tomer's insistence  on  instant  delivery.  Now 
that  the  maximum  hours  are  legally  fixed, 
the  buyer  has  learnt  to  be  more  regular  in  his 
demands.  The  extreme  seasonal  irregularity 
of  the  London  dressmaking  trade  would 
undoubtedly  be  mitigated,  if  dressmakers 
were  absolutely  prevented  from  working 
more  than  a  fixed  maximum  day.  Customers 
would  simply  not  be  able  to  insist  on  delivery 
in  an  unreasonably  short  time."  ^  Nor  is 
even  this  all.  Since  the  extremes  of  booming 
demand  do'  not  fall  at  the  same  time  upon  all 


188  UNEMPLOYMENT 

the  firms  engaged  in  an  industry,  the  legal 
limitation  of  overtime  is  apt  to  lead  firms 
that  are  exceptionally  busy  to  meet  the  rush 
in  part  by  giving  out  work  on  commission 
to  other  firms;  and  this  means,  of  course, 
that  the  demand  for  labour  in  a  typical 
representative  firm  is  rendered  more  stable 
than  the  orders  for  goods  given  to  it  by  the 
public.  Against  these  various  considerations! 
suggesting  that  the  restriction  of  overtime  is 
likely  to  lessen  unemployment,  there  must 
be  set  a  very  important  consideration  of  aj 
contrary  tendency.  The  limitation  of  over- 
time, besides  leading  to  the  various  reactions 
just  indicated,  would  have  the  effect  of 
tempting  employers  in  the  industry  affected 
so  to  raise  their  wage-rate  as  to  attach  to 
that  industry  a  larger  number  of  hands. 
The  resource  of  overtime,  by  which  periods 
of  booming  trade  could  formerly  be  met, 
being  restricted,  they  would  be  driven  back 
on  the  alternative  resource  of  more  men. 
This,  however,  implies  more  unemployment 
in  bad  times,  and,  therefore,  a  larger  volume 
of  unemployment  on  the  whole.  It  is  probable 
that,  in  some  cases,  this  influence  will  out- 
weigh, and  that,  in  other  cases,  it  will  be 
outweighed  by,  those  other  influences  of 
restriction  which  tend  to  lessen  unemploy- 
ment.    The  more  perfect  is  the  mobility  of 


i 


DIRECT   STATE   ACTION  189 

labour,  and  the  greater  is  the  extent  to  which 
the  fluctuations  of  demand  in  the  different 
parts  of  the  industry  affected  tend  to  cancel 
one  another,  the  greater  is  the  HkeHhood  that 
the  volume  of  unemployment  will,  on  the 
whole,  be  reduced. 

When,  on  the  basis  of  this  analysis,  the 
political  question  is  raised  whether  any  of 
the  various  forms  of  manipulation  designed 
to  lessen  unemployment,  that  have  been 
discussed  in  this  chapter,  ought  to  be  under- 
taken by  public  authorities,  it  is  sufficiently 
obvious  that  the  answer  cannot  be  general, 
but  must  depend  on  a  balancing,  in  each 
particular  case,  of  the  probable  gain  of  lessened 
unemployment  against  the  probable  social 
cost  of  the  means  employed  to  bring  about 
that  gain.  As  regards  the  dovetailing  of 
occasional  public  demands  into  the  interstices 
of  private  demands  and  the  steadying  of 
public  demands  that  are  naturally  variable, 
there  can  be  little  doubt  that  considerable 
investment  in  these  policies  might  advantage- 
ously be  made.  This  is  especially  the  case 
where  the  industries,  which  it  is  proposed  to 
manipulate,  are  engaged  in  the  production 
of  durable  commodities.  For  it  is  evidently 
less  wasteful  to  make  a  thing  at  a  time  when 
the  demand  for  it  is  low,  if  that  thing  can  be 
stored  against  a  keener  demand  in  the  future, 


190  UNEMPLOYMENT 

than  it  is  if  the  thing  must  be  consumed 
immediately.  As  regards  the  policy  of  de- 
liberately making  the  demand  of  public 
authorities  variable,  in  such  a  way  as  to  com- 
pensate variations  of  private  demand,  and 
as  regards  the  legal  limitation  of  over-time, 
the  case  is  more  doubtful.  The  latter  policy, 
however,  may  find  powerful  support  in  a  con- 
sideration additional  to  those  of  which  account 
has  here  been  taken.  This  consideration  is 
that  over-time  pressed  unduly  threatens  the 
health,  and  interferes  with  the  private  life, 
of  the  workpeople  affected;  and  that,  there- 
fore, legal  limitation  of  it  is,  from  one  point  of 
view,  a  means  of  protection  against  injurious  '• 
exploitation   of  the  economically  weak. 


CHAPTER  XII 

THE   DISTRIBUTION    OF   UNEMPLOYMENT 

In  accordance  with  the  programme  laid 
down  at  the  close  of  Chapter  III  we  have  been 
concerned  exclusively  during  the  eight  pre- 
ceding chapters  with  the  volume  of  unem- 
ployment that  prevails  on  the  average,  when 
account  is  taken  of  good  and  bad  years 
together.     Recognizing    that,     other     things 


DISTRIBUTION  OF  UNEMPLOYMENT  191 

being  equal,  the  total  mass  of  social  evil 
associated  with  unemployment  is  likely  to 
be  greater  or  smaller,  according  as  this  volume 
is  greater  or  smaller,  we  have  investigated 
the  causes,  upon  which  the  average  quantity 
of  unemployment  depends,  and  have  endea- 
voured to  indicate  devices  by  the  adoption 
of  which  it  might  be  diminished.  This  part 
of  our  inquiry  is  now  completed.  But  there 
remains  another  part.  For,  though,  as  the 
discussion  of  Chapter  III  made  plain,  the 
quantity  of  social  evil  due  to  unemployment 
over  any  period  depends  in  part  upon  the 
volume  of  unemployment,  it  does  not  depend 
exclusively  upon  this  volume.  On  the  con- 
trary, over  any  period,  the  same  volume  of 
unemployment  may  be  responsible  for  differ- 
ent quantities  of  social  evil,  according  to  the 
way  in  which  it  is  distributed  among  the 
workpeople,  and  according  to  the  measures 
of  protection  against  its  consequences  which 
the  community  adopts.  In  the  present  and 
two  following  chapters,  therefore,  the  volume 
of  unemployment  that  prevails  on  the  average 
will  be  regarded  as  given,  and  attention  will 
be  directed  to  certain  important  influences 
by  which,  in  these  circumstances,  the  evil  con- 
sequences resulting  from  it  may  be  limited 
and  controlled.  The  influence  to  be  dis- 
cussed in  this  chapter  is  that  exercised  by 


h 


192  UNEMPLOYMENT 

the  manner  in  which  unemployment  is  dis- 
tributed among  different  wage-earners. 

It  is  obvious  enough  that  the  volume  of 
unemployment  prevailing  at  any  time  may 
either  be  concentrated  upon  a  small  number 
of  workpeople  or  scattered  fairly  evenly  over 
a  large  number.  It  should  be  recognized, 
indeed,  that,  just  as  in  the  conception  of 
"  fluctuating  character,"  which  was  discussed 
in  Chapter  VII,  so  also  in  the  conception  of 
"  concentration,"  ambiguities  are  latent.  For 
it  is  easy  to  imagine  arrangements,  one  of  which 
appears  the  more  concentrated  in  the  light 
of  one  criterion,  while  the  other  appears  the 
more  concentrated  in  the  light  of  another  and 
apparently  not  less  plausible  criterion.  Still,  in 
most  cases  of  practical  importance,  this  kind  of 
difficulty  does  not  obtrude  itself.  For  our 
present  purpose  we  may  lay  it  dovm.  broadly 
that,  in  industries  where  bad  times  are  predomi- 
nantly met  by  the  dismissal  of  hands,  unem- 
ployment will  be  concentrated  fairly  closely 
upon  a  limited  number  of  men,  the  same  least 
efficient  persons  being  selected  for  dismissal 
on  nearly  every  occasion ;  while,  in  industries, 
such  as  coal-mining  and  the  cotton  industry, 
where  bad  times  are  predominantly  met  by 
the  practice  of  short-time  (or  a  short  working 
week),  unemployment  will  be  spread  widely 
among  many  men.     Thus,  from  the  present 


DISTRIBUTION  OF  UNEMPLOYMENT  193 

point  of  view,  the  practice  of  meeting  bad  times 
by  dismissals  is  roughly  equivalent  to  the  con- 
centration of  unemployment,  and  the  practice 
of  meeting  them  by  short-time  to  the  spreading 
of  unemployment. 

So  much  being  understood,  it  becomes  our 
task  to  disentangle  the  principal  causes,  by 
which  the  choice  between  the  concentration 
of  unemployment  (that  is,  the  dismissal 
method)  and  the  spreading  of  unemployment 
(that  is,  the  short-time  method)  is  determined. 
Before  this  task  is  undertaken,  however,  it  is 
necessary  to  consider  a  possible  complication. 
It  may  be  suggested  that  the  manner  of  dis- 
tribution of  unemployment  will  itself,  in  some 
circumstances,  react  on  the  quantity  of  unem- 
ployment, and  that,  therefore,  these  reactions, 
as  well  as  the  direct  consequences  of  the 
distribution,  need  to  be  investigated.  One 
form  which  this  suggestion  may  take  is 
readily  disposed  of.  In  Chapter  V  a  study 
was  made  of  the  effects  of  the  establishment, 
by  a  Trade  Union  or  otherwise,  of  an  artifici- 
ally high  wage-rate  in  a  limited  part  of  the 
field  served  by  workpeople  of  a  given  grade ; 
and  it  was  shown  that,  if  all  the  work  available 
in  the  favoured  part  is  concentrated  upon  a 
more  or  less  permanent  staff,  and,  therefore, 
by  implication,  if  all  the  unemployment  is 
concentrated  upon  whatever  other  men  may 


194  UNEMPLOYMENT 

be  assembled  there,  these  other  men  will  be 
driven  away  and  will  find  employment  else- 
where. In  this  class  of  case  it  might  seem, 
at  first  sight,  that  concentration  of  unemploy- 
ment must  involve  a  reduetion  in  its  volume. 
That  appearance  is,  however,  delusive;  for, 
in  the  case  contemplated,  concentration  of 
unemployment  only  exists  for  a  moment,  as 
a  stage  towards  the  disappearance  of  unem- 
ployment. When  things  have  adjusted  them- 
selves, there  is,  indeed,  concentration  of 
employment  in  the  part  of  the  industrial 
field  under  review,  but  there  is,  and  can  be, 
no  concentration  of  unemployment,  for  the 
simple  reason  that  no  unemployment  exists. 
This  form  of  the  suggestion  need  not,  there- 
fore, disturb  us.  There  remains,  however,  a 
more  truly  relevant  form  of  it.  When  a 
depression  in  any  part  of  the  industrial  field 
is  met  by  the  devices  of  short-time  or  the 
short  working  week,  by  which  unemployment 
is  spread  widely,  the  probability  that  work- 
men will  move  from  that  part  of  the  industrial 
field  to  other  parts,  where  full  employment 
could  be  accorded  to  them,  is,  the  suggestion 
runs,  notably  lessened.  This  suggestion  is 
important  because  it  can  be  used  as  an 
argument  against  the  expedient  of  short- 
time.  The  contention  is  that,  when  conditions 
are  such  that  a  definite  cost  to  the  worker 


DISTRIBUTION  OF  UNEMPLOYMENT  195 

is  involved  in  his  moving  from  the  depressed 
centre  to  another  centre  in  need  of  hands, 
the  advantage  of  movement  is  much  more 
likely  to  outweigh  the  cost  and  to  induce 
men  to  move,  if  the  alternative  is  complete 
idleness  for  some,  than  if  it  is  partial  idleness 
for  all.  When  the  conditions  contemplated 
prevail,  this  reasoning  is  undoubtedly  correct ; 
and  it  is  true  that,  if  the  unemployment  that 
occurs  is  spread  widely,  the  aggregate  quantity 
of  unemployment  is  likely  to  be  larger  than 
it  would  be  under  a  system  of  greater  con- 
centration. It  may,  however,  fairly  be  re- 
plied, fii'st,  that  the  effect  on  the  volume  of 
unemployment  is  likely  in  any  event  to  be 
small  ;  and  secondly,  that  when  short-time 
is  extensively  adopted  as  a  means  of  meeting 
depressions,  it  is  more  apt  to  take  the  form 
of  organized  short-time  throughout  a  whole 
industry — as  in  the  cotton  industry  of  Lan- 
cashire— than  that  of  independent  short-time 
at  isolated  centres.  Since,  however,  as  be- 
tween a  whole  industry  and  other  occupations, 
temporary  movements  of  workmen  can  rarely 
take  place  to  any  appreciable  extent,  the 
fact  that  short -time  somewhat  obstructs 
such  movements  can  produce  no  significant 
effect.  Consequently,  though  it  must  be 
admitted  that,  in  certain  special  cases,  the 
distribution    of    unemployment    by    way    of 


196  UNEMPLOYMENT 

spreading,  instead  of  by  way  of  concentration, 
may  somewhat  enhance  the  volume  of  un- 
employment, the  matter  is  of  trifling  import- 
ance. We  may,  therefore,  safely  leave  it  out 
of  account,  and  proceed,  without  reference  to 
it,  to  a  discussion  of  the  influences  by  which 
the  choice  between  the  concentration  and  the 
spreading  of  unemployment  is  determined. 

Now,  it  is  quite  obvious  that  several  in- 
fluences, which  are  important  in  this  connec- 
tion, must  have  already  made  their  appearance 
in  these  pages ;  for  the  extent  to  which  a 
given  volume  of  unemployment  is  concen- 
trated upon  a  small  number  of  workpeople, 
or  spread  among  a  large  number,  must  depend 
in  part  upon  the  nature  of  the  causes  by  which 
it  has  been  called  into  being.  It  is  no  part 
of  my  purpose,  however,  to  review  again, 
from  a  different  point  of  view,  influences 
whose  operation  has  already  been  discussed. 
Rather,  the  extent  of  the  fluctuating  character 
of  demand,  the  wage-rate  and  the  circum- 
stances affecting  mobility  will  be  taken  as 
given,  and  inquiry  will  be  focussed  upon 
certain  other  and  less  remote  influences,  of 
which  little  has  been  said  so  far,  but  whose 
presence  is,  none  the  less,  of  great  significance. 
A  little  reflection  shows  that  the  most  im- 
portant among  these  are  three  in  number. 

First,  as  was    pointed   out  in   Chapter  V, 


DISTRIBUTION  OF  UNEMPLOYMENT  197 

even  under  piece-wages,  and,  still  more  mark- 
edly, where  time-wages  prevail,  incompetent 
workpeople  are  apt,  when  employed,  to  be 
paid  a  somewhat  higher  wage-rate  per  unit  of 
efficiency  than  competent  men  receive.  This 
circumstance  tends  to  bring  it  about  that, 
whenever  conditions  are  such  that  employers 
are  driven  to  reduce  their  production,  they 
find  it  more  profitable,  other  things  being 
equal,  to  dismiss  the  less  competent  among 
their  hands,  rather  than  to  place  both  the 
less  and  the  more  competent  upon  short-time. 
The  pressure  exerted  in  this  way  in  favour 
of  a  policy  of  dismissal  is  naturally  stronger 
in  wage-systems  where  the  differentiation  in 
favour  of  the  incompetent  is  large  than  in 
those  where  it  is  small.  It  is,  therefore, 
interesting  to  observe  that,  in  the  United 
Kingdom,  industries  paying  time-wages  pre- 
dominantly dismiss  hands,  while  industries 
paying  piece-wages,  such  as  coal-mining  and 
cotton  spinning,  predominantly  work  short- 
time.^ 

Secondly,  an  influence  of  some  importance, 
with  a  tendency  contrary  to  the  preceding, 
arises  out  of  the  technique  of  production. 
In  certain  industries,  a  number  of  important 
charges  are  incurred  so  long  as  a  factory  is 
running  at  all,  whatever  the  number  of  the 
men  actually  at  work  may  be — charges,  for 


198  XJNEMPLOYMENT 

example,  connected  with  the  supply  of  arti- 
ficial light  or  of  power  from  a  central  station. 
In  these  industries  there  is  naturally  a  ten- 
dency to  reduce  output,  when  necessity  arises, 
by  resort  to  short-time  or  a  short  working 
week  rather  than  by  dismissal  of  hands.  In 
other  industries,  indeed,  there  are  few  charges 
that  can  be  reduced  by  a  diminution  in  the 
working  time  of  a  factory  more  effectively 
than  by  an  equivalent  diminution  in  the  num- 
ber of  hands  employed.  In  all  cases,  however, 
it  would  seem  that  technical  incidents  of  the 
above  class  are  likely  to  be  favourable,  in 
some  measure,  to  the  practice  of  short -time 
and  short  work,  though  the  pressure  exerted 
by  them  will  vary  from  industry  to  industry, 
and  will  sometimes  be  very  slight. 

The  third  and  remaining  influence  relevant 
to  our  problem  is  as  follows.  In  some  occu- 
pations employers  manifest  great  unwilling- 
ness, when  bad  times  come,  definitely  to 
sever  their  connection  with  workpeople  who 
have  become  known  to  them.  The  reason 
for  this  unwillingness,  where  it  exists,  is 
manifest.  If  tried  men  are  dismissed,  it 
may  be  found,  when  next  they  are  required, 
either  that  they  have  obtained  a  job  else- 
where and  are  no  longer  available,  or  that, 
not  having  obtained  a  job,  their  technical 
and     general     efficiency    has     been     gravely 


DISTRIBUTION  OF  UNEMPLOYMENT  199 

impaired  by  a  long  spell  of  idleness.  In  cases 
where  other  men  equally  satisfactory  to  an " 
employer  can  be'  engaged  without  difficulty, 
this  circumstance  need  not  affect  him.  In 
many  instances,  however,  men  who  have 
already  worked  for  a  particular  employer 
have  attained,  by  that  very  fact,  a  special 
value  to  him,  in  excess  of  that  belonging  to 
other  men  of  equal  general  efficiency.  In 
these  cases  the  circumstance  that  the  tem- 
porary dismissal  of  a  workman  may  interfere 
with  the  subsequent  re-engagement  of  him 
must  affect  the  employer,  and  must  generate 
in  him  unwillingness  to  dismiss.  This  un- 
willingness is  specially  likely  to  be  present 
in  occupations  where  knowledge  of  their 
workmen's  character  is  important  to  em- 
ployers, whether  because  valuable  materials 
are  used  or  for  any  other  reason,  and  also  in 
occupations  where  acquaintance  on  the  part 
of  the  workpeople  with  the  peculiarities  of  a 
particular  factory  or  with  the  special  processes 
of  a  particular  firm  are  important.  As  regards 
certain  kinds  of  unskilled  workers,  however, 
the  case  is  different.  A  man  who  has  been 
employed  before  on  a  particular  employer's 
job  is  not  appreciably  more  valuable  to  him 
than  one  who  has  not  been  so  employed. 
This  is  obviously  the  case  with  dock-labourers. 
There  is  no  factory  with  peculiarities  to  be 


200  UNEMPLOYMENT 

known ;  the  ships  that  have  to  be  unloaded 
are  different  from  day  to  day;  a  man  who 
has  served  employer  A  to-day  has  gained 
thereby  no  extra  economic  value  in  his  eyes. 
Consequently,  except  among  specially  philan- 
thropic employers,  aversion  to  dismissal  does 
not  tend  to  establish  itself  to  any  noticeable 
extent  as  regards  this  class  of  men. 

The  interplay  of  these  three  influences, 
acting  with  varying  intensities  and  combined 
in  different  proportions,  determines  the  choice 
between  the  policy  of  short-time  and  the 
policy  of  dismissal  of  hands  throughout  the 
industrial  field.  The  results  in  different 
occupations  are,  as  is  shown  by  some  interest- 
ing statistics  recently  collected  by  Professor 
Chapman,  widely  dissimilar.  Thus,  in  the 
depression  of  1908,  a  contraction  of  output 
of  133  per  cent,  in  the  cotton  trade  was  met 
by  5  per  cent,  dismissal  of  hands  and  8*7  short- 
time,  whereas  in  the  glass  trade  a  contraction 
of  11' 8  per  cent,  was  met  by  11  per  cent, 
dismissal  of  hands,  and  less  than  1  per  cent, 
short-time.  Summarizing  his  results,  Pro- 
fessor Chapman  writes  :  "Of  the  textile 
trades  the  cotton  industry  seems  to  be  the 
most  successful  in  avoiding  the  creation  of 
the  unemployed  in  times  of  trade  depression, 
and  the  woollen  industry  appears  to  be  more 
successful  than  the  worsted.     The  boot  and 


DISTRIBUTION  OF  UNEMPLOYMENT  201 

shoe  trade  is  wavering  in  its  policy,  but  the 
iron  and  steel  and  glass  industries  throw 
off  unemployed  with  every  fluctuation  of 
trade."  ^  These  divergences  suggest  that  we 
may,  perhaps,  have  to  do  here  with  a  pheno- 
menon into  the  complex  character  of  which 
analysis  has  not  as  yet  fully  penetrated. 
Cautious  statement  is,  therefore,  desirable. 
It  is,  however,  safe  to  conclude  that  the 
policy  of  short-time  in  periods  of  depression, 
and,  therewith,  the  spreading  of  unemploy- 
ment over  a  large  number  of  workpeople,  is 
specially  likely  to  rule  in  industries  employing 
skilled  men  and  paying  them  piece- wages. 

The  preceding  discussion  of  causes  possesses 
significance  on  account  of  the  relation  that 
subsists  between  the  social  evil  resulting  from 
any  volume  of  unemployment  and  the  way  in 
which  that  volume  is  distributed.  To  com- 
plete this  chapter,  therefore,  we  have  to 
satisfy  ourselves  as  to  what  precisely  that 
relation  is;  to  ask,  in  short,  what  different 
effect  is  produced  on  social  welfare  when  the 
unemployment  that  occurs  affect  a  small 
number  of  workmen  in  a  great  degree  and 
when  it  affects  a  large  number  of  workmen  in 
a  small  degree.  If  the  modern  world  were 
in  the  grip  of  an  absolute,  unbroken,  rigorous 
system  of  laissez-faire,  so  that  no  man  ever 
helped    another,  and    the    poor    were    never 

G  2 


202  UNEMPLOYMENT 

relieved,  this  question  would  admit  of  an 
easy  answer.  The  aggregate  suffering  in- 
volved when  one  man  has  two  pounds  and 
a  second  man  has  nothing  is  obviously  greater 
than  it  would  be  if  one  pound  belonged  to 
each  of  them.  There  can  be  no  question, 
therefore,  that,  subject  to  the  qualifications 
mentioned  on  p.  194,  the  social  evil  result- 
ing from  a  given  volume  of  unemployment 
would  be  least  when  that  volume  was  spread 
evenly  over  the  working-classes,  and  that 
it  would  be  made  greater  by  every  advance  in 
the  direction  of  closer  concentration.  In  the 
actual  world,  however,  where  private  charity 
and  a  public  Poor  Law  everywhere  prevail, 
the  matter  is  less  simple.  Suppose,  for 
example,  that,  in  some  industries,  the  con- 
ditions are  such  that,  when  unemplojTnent  is 
spread  evenly  among  all  the  persons  attached 
to  an  industry,  none  of  these  persons  can  earn 
sufficient  for  independent  self-support,  and 
all,  therefore,  need  to  have  their  incomes 
eked  out  by  public  or  private  benevolence; 
and  suppose,  further,  that,  by  the  concen- 
tration of  all  the  work  on  one  group  of  these 
persons  and  of  all  the  unemployment  on 
another  group,  the  former  group  would  be 
raised  to  the  stage  of  adequate  self-support, 
while  the  latter  were  thrown  more  completely 
on  the  hands  of  charity.     In  that  case  it  \^•ill 


INSURANCE  203 

hardly  be  disputed  that  social  evil  would, 
on  the  whole,  be  made  less  by  a  concentration 
of  unemployment  in  the  way  described.  We 
seem,  therefore,  to  be  led  to  the  general 
conclusion  that,  as  regards  grades  of  work- 
people so  well  situated  that  all  their  members 
can  attain  to  adequate  earnings  when  un- 
employment is  spread  among  them  evenly, 
the  spreading  of  unemployment  is  better  than 
its  concentration ;  while,  as  regards  grades  so 
badly  situated  that  the  spreading  of  unem- 
ployment forces  the  earnings  of  all  below  a 
reasonable  subsistence  minimum,  concentra- 
tion is  better  than  spreading.  In  the  former 
case  the  evil  results  of  a  given  volume  of 
unemployment  would  be  diminished  if  the 
manufacturers  in  any  industry  were  persuaded 
to  adopt  a  policy  of  organized  short-time  in 
periods  of  depression.  In  the  latter  case  the 
results  of  such  a  policy  would  be,  not  beneficial, 
but  injurious. 


CHAPTER  XIII 

INSURANCE   AGAINST   UNEMPLOYMENT 

In  the  present  chapter  not  only  the  volume 
of  unemployment,  but  also  the  way  in  which 


204  UNEMPLOYMENT 

it  is  distributed  among  people,  are  supposed 
to  be  given.  Even  so,  the  quantity  of  social 
evil  that  results  is  not  absolutely  determined, 
but  depends  in  part  upon  certain  further 
influences,  the  general  character  of  which 
it  is  now  necessary  to  discuss.  It  is  fairly 
plain  that,  in  whatever  way  unemployment  is 
distributed,  whether  it  is  concentrated  upon 
a  comparatively  small  number  of  persons  or 
spread  more  evenly  among  a  large  number, 
the  bulk  of  the  individuals  affected  by  it  are 
affected  in  different  degrees  at  different  times. 
This  would  be  the  case,  even  if,  at  every  single 
moment,  the  whole  volume  of  unemployment 
then  existing  were  spread  evenly  over  the 
whole  body  of  workpeople;  because,  as  has 
already  been  explained,  and  as  the  mere 
appearance  of  our  streets  exhibits,  the  volume 
of  unemployment  and,  therefore,  in  general, 
the  number  of  persons  unemployed,  varies 
from  time  to  time  with  general  fluctuations 
of  demand.  As  a  necessary  consequence,  the 
wage-income  of  the  individuals  affected  by 
unemployment  fluctuates.  It  was  shown, 
however,  in  Chapter  III  that  a  fluctuating 
income  carries  with  it  a  fluctuating  consump- 
tion; and  that  this  involves  an  element  of 
evil,  from  which  a  consumption  of  equal 
average  amount,  that  did  not  fluctuate, 
would    be    free.     This    result    implies    that. 


INSURANCE  205 

when  the  volume  and  the  distribution  of 
unemployment  are  both  given,  it  will  be  to 
the  advantage  of  those  concerned  to  accept 
a  certain  diminution  in  their  average  con- 
sumption, if,  by  so  doing,  they  can  separate, 
by  some  form  of  buffer,  fluctuations  in  con- 
sumption from  fluctuations  in  income.  It 
will  pay  them,  in  short,  to  consume  somewhat 
less,  in  order  to  be  able  to  consume  more 
regularly.  There  follow  two  inferences.  The 
first  is  that  the  evil  consequences  resulting 
from  a  given  volume  of  unemployment  will 
be  less,  the  more  efficient  and  economical  are 
the  arrangements  to  which  workpeople  are 
able  to  resort  for  the  purpose  of  steadying 
their  consumption ;  the  second,  that  these  evil 
consequences  will  be  less,  the  more  closely  the 
amount  of  resources  actually  devoted  by 
workpeople  to  the  above  purpose  approxi- 
mates to  the  amount  that  a  full  understanding 
of  their  true  interests  would  dictate.  The 
business  of  the  present  chapter  is  to  work  out 
the  practical  bearing  of  these  two  inferences. 
In  all  circumstances  it  is  possible  to  render 
consumption  more  steady  than  income  by 
the  device  of  storing  away  commodities  in 
good  times  for  the  needs  of  the  bad  times  that 
may  follow.  The  case  is  essentially  the  same, 
whether  persons  in  receipt  of  fluctuating  in- 
comes undertake  the  work  of  storage  them- 


206  UNEMPLOYMENT 

selves,  or  induce  other  people  to  do  this  for 
them  by  offering  interest  or  other  considera- 
tion in  return  for  intermittent  loans.  Direct 
saving  by  members  of  the  working  classes 
against  periods  of  unemployment,  defence 
against  these  periods  by  means  of  credits  from 
shopkeepers  and  defence  by  means  of  loans 
obtained  from  pawnbrokers  are  not  different 
devices,  but  merely  different  forms  of  the 
same  device.  Under  all  of  them  the  essence 
of  what  happens  is  that  somebody  holds 
back  from  consumption,  and  maintains  in 
store  during  the  intervals  between  good  and 
bad  times,  a  certain  quantity  of  resources. 
An  average  of  a  thousand  pounds'  worth  of 
goods  held  in  store  in  this  way  will,  in  all 
circumstances,  avail  to  render  consumption 
more  steady  than  it  would  otherwise  be.  The 
people  who  are  defending  themselves  against 
unsteadiness  by  means  of  it  cut  themselves 
off  from  this  thousand  pounds  altogether, 
being  free  neither  to  consume  it  nor  to  obtain 
interest  by  investing  it  in  some  undertaking 
productive  of  material  goods.  If  the  incomes 
of  all  members  of  the  community  always 
fluctuated  simultaneously  and  similarly,  while 
needs  and  general  tastes  remained  constant, 
this  method  of  storing  away  commodities  in 
good  times  would  be  the  only  way  in  which 
consumption,    as    between    good    times    and 


INSURANCE  207 

bad  times,  could  be  made  more  steady  than 
income. 

We  may  come  nearer  to  real  life  by  sup- 
posing that  the  incomes  of  all  the  workpeople 
engaged  in  a  particular  industry  fluctuate 
simultaneously  and  similarly,  but  that  there 
is  no  rigid  association  of  this  kind  between 
their  incomes  and  those  of  other  members 
of  the  community.  In  this  case,  it  is  pro- 
bable that  the  bad  times  of  these  work- 
people will  coincide  with  the  good  times  of 
some  other  groups  of  persons.  They  can, 
therefore,  be  met  in  part  by  loans  from 
these  persons,  not  merely  of  commodities 
previously  put  into  store  for  the  purpose, 
but  also  of  commodities  coming  into  being 
at  the  moment.  Thus,  in  order  to  get 
the  same  defence  against  unsteadiness  that 
was  yielded,  in  the  conditions  contemplated 
just  now,  by  a  thousand  pounds'  worth  of 
commodities  actually  held  in  store,  the  work- 
people concerned  need  only  to  hold  control  over 
a  thousand  pounds'  worth  of  commodities,  a 
part  of  which  may,  in  the  present  instance, 
consist  of  such  things  as  the  fixed  plant 
of  productive  enterprises.  In  other  words, 
though  they  must  still  hold  back  a  thousand 
pounds  from  consumption,  they  need  not 
hold  back  as  much  as  this  from  production 
also;    they   are   still   bound  to   save,   or   to 


208  UNEMPLOYMENT 

secure  the  saving  of,  a  thousand  pounds,  but, 
instead  of  holding  it  all  barren,  they  are 
now  enabled  to  invest  a  part  of  it  in  interest- 
bearing  enterprises.  This  means,  in  effect, 
that  a  given  defence  against  unsteadiness  of 
consumption  can  be  obtained  by  them  at  a 
smaller  real  cost  than  was  possible  before. 

The  case  which  we  have  just  considered 
would  fairly  represent  the  facts  in  an  in- 
dustry where  the  unemployment  occurring 
at  any  moment  was  distributed  absolutely 
evenly  among  all  the  workpeople;  and  it 
would  also  fairly  represent  them  in  an  industry 
where  this  unemployment  was  concentrated 
as  closely  as  possible  upon  a  permanent 
known  group  of  persons  arranged  in  order 
on  a  preference  list.  In  the  former  event 
everybody  would  know  that  a  workman  A 
could  never  be  employed  while  another 
workman  B  was  unemployed.  In  the  latter 
event  everybody  would  know  that,  though  A 
might  often  be  employed  when  B  was  unem- 
ployed, this  same  A  could  never  be  unem- 
ployed while  B  was  employed.  In  neither 
of  these  cases,  therefore,  is  there,  in  general, 
scope  for  any  agreement  to  the  effect  that  A 
shall  help  B  when  he  is  prosperous  and  B 
unfortunate,  on  condition  that  B  accepts  a 
reciprocal  obligation.  In  real  life,  however, 
it  seldom  happens,  either  that  the  unemploy- 


INSURANCE  209 

merit  occurring  in  an  industry  is  spread  at 
any  moment  with  the  absolute  evenness 
contemplated  above,  or  that  it  is  concentrated 
with  the  rigour  there  contemplated  on  a  de- 
fined permanent  group.  Consequently,  there 
is  scope  for  arrangements  involving  mutual 
obligations  between  A  and  B.  The  acceptance 
of  these  mutual  obligations  provides,  I  propose 
to  show,  a  means  of  defence  against  unsteadi- 
ness of  individual  consumption,  much  less 
costly  than  those  that  we  have  considered 
hitherto. 

This  fact  can  best  be  made  plain  by  the 
use,  in  illustration,  of  an  extreme  instance. 
Let  us  suppose  that  the  volume  of  unemploy- 
ment in  some  given  industry  is  known  to  be 
constant,  and  also  that  there  is  no  reason 
at  any  moment  to  expect  any  one  work- 
man rather  than  any  other  to  be  unem- 
ployed. In  this  case  each  workman  suffers 
a  certain  risk  of  unemployment,  and  the  risks 
of  all  are  equal.  The  fluctuations  in  individual 
consumption  that  normally  result  from  un- 
employment can,  therefore,  be  reduced  to 
any  extent  that  is  desired  by  the  collection 
of  a  weekly  subscription  from  those  in  work 
for  the  benefit  of  those  unemployed.  Further- 
more— and  this  is  the  present  point — the 
steadiness  induced  in  individual  consumption 
will  be  secured  at  no  cost  whatever ;  for  no 


210  UNEMPLOYMENT 

resources  need  be  held  back  from  consumption 
either  in  the  form  of  stored  commodities  or 
in  the  form  of  commodities  invested  in  pro- 
ductive enterprise.  Of  course,  in  real  life, 
the  volume  of  unemployment  in  an  industry 
is  never  constant,  and,  if  it  were,  could  never 
be  known  to  be  so.  Consequently,  it  is  never 
in  practice  possible  to  abolish  fluctuations  in 
consumption  at  no  cost.  But,  none  the  less, 
the  device  of  "  mutuality,"  an  extreme  case 
of  which  I  have  been  describing,  is  of  very 
great  importance.  Practically  always  resort 
to  it  can  reduce,  at  no  cost,  some  of  that  un- 
steadiness of  individual  consumption,  which 
the  irregular  incidence  of  unemployment 
threatens.  The  degree  of  economy,  indeed, 
which  it  can  effect,  varies,  of  course,  with  the 
circumstances.  When  fluctuations  are  due 
to  seasonal  or  other  general  causes  acting  on 
the  whole  body  of  an  industry,  a  considerable 
proportion  of  the  unsteadiness  experienced 
by  the  typical  individual  is,  from  the  nature 
of  things,  incapable  of  being  met  otherwise 
than  by  the  establishment  of  a  store  of 
commodities.  In  this  case,  therefore,  no 
economy  is  possible.  When  again,  the  fluctu- 
ations of  wage-income  among  individuals  occur 
in  a  large  number  of  small  patches,  repre- 
senting, say,  three  days'  unemployment  at  a 
time,   consumption  can  be  steadied  without 


I 


INSURANCE  211 

resort  to  mutuality  by  the  establishment  of 
a  very  small  store— much  smaller  than  would 
be  needed  if  an  equal  volume  of  unemploy- 
ment occurred  in  the  form  of  a  small  number 
of  large  patches.  In  this  case,  therefore, 
even  though  the  adoption  of  mutuality  should 
enable  that  store  to  be  entirely  dispensed 
with,  only  a  very  small  economy  would  be 
made.  These  considerations  should  not  be 
neglected.  None  the  less,  it  remains  true 
that  the  discovery  of  the  idea  of  mutuality 
constitutes  an  important  step  in  the  improve- 
ment and  cheapening  of  arrangements  for 
rendering  individual  consumption  steady  in 
the  face  of  fluctuating  employment. 

But  the  mere  discovery  of  the  idea  of 
mutuality  only  constitutes  a  step  towards 
these  things.  No  actual  difference  is  made 
by  it,  until  machinery  has  been  devised, 
through  which,  in  combination  with  saving, 
it  can  be  embodied  concretely  in  an  insurance 
scheme.  Given  the  idea,  the  contribution 
which  it  can  make  towards  the  steadying  of 
consumption  is  greater  or  less,  according  as 
the  machinery  embodying  it  can  overcome, 
with  greater  or  less  success,  the  difficulties 
which  oppose  its  practical  development. 
Among  these  must  be  included  that  of 
adapting  subscriptions  and  benefits  to  the 
different    risks   of     unemployment   to   which 


212 


UNEMPLOYMENT 


different  workpeople  are  subject.  A  scheme 
demanding  equal  contributions  from,  and 
paying  equal  benefit  to,  workpeople  who  are 
sure  to  be  unemployed  frequently  and  work- 
people for  whom  unemployment  is  a  highly 
improbable  contingency,  can  only  be  worked, 
if  the  more  fortunate  workpeople  consent  to 
make  a  gift  to  the  less  fortunate.  Apart  from 
this,  the  machinery  of  insurance  must  be  so 
arranged  as  either  to  group  in  separate  funds 
workpeople  whose  risks  are  different,  or  to 
furnish  tariffs  of  contributions  and  benefits 
adjusted  to  the  circumstances  of  different 
workpeople.  Hitherto,  as  a  general  rule, 
separate  funds  have  been  constituted  for 
Unions  of  men  engaged  in  separate  industries, 
the  wholly  inefficient  being  refused  admission 
to  the  Unions ;  and  it  has  been  provided  that 
benefit  shall  not  become  payable  a  second  time, 
until  a  certain  number  of  weeks'  contributions 
have  been  made  since  the  close  of  the  preced- 
ing period  of  benefit.  The  class  of  difficulty 
against  which  these  devices  are  directed  is, 
however,  subordinate  and  technical  rather 
than  fiuidamental.  A  much  more  important 
matter  is  that,  in  the  case  of  insurance 
against  unemployment,  as  in  that  of  all 
other  forms  of  insurance,  the  institution  of 
insurance  tempts  insured  persons  to  simulate, 
or,  it  may  be,    deliberately  to  bring  about. 


INSURANCE  213 

the  insurable  event.  Unless  this  tendency 
can  be  held  in  reasonable  control,  insurance 
is  impracticable.  It  is,  therefore,  essential 
that  some  study  be  made  of  the  methods  by 
which,  in  the  special  case  of  insurance  against 
unemployment,  the  tendency  can  be  combated. 
It  will  be  remembered  that,  in  the  first 
chapter  of  this  book,  unemployment  was,  in 
effect,  defined  as  want  of  work  on  the  part 
of  a  workman  desiring  to  obtain  work  at 
the  ruling  rate  of  wages  appropriate  to  his 
occupation.  This  is  the  insurable  event  in 
regard  to  which  the  dangers  of  voluntary 
creation  and  of  simulation  have  now  to  be 
studied.  Our  task  is,  in  some  measure,  simpli- 
fied by  the  fact  that  the  notion  of  in- 
voluntariness  is  embraced  in  the  definition 
of  unemployment.  In  the  case  of  such  an 
insurable  event  as  sickness,  it  is  at  least 
possible,  however  improbable  in  practice, 
that  people  may  make  themselves  ill  on 
purpose.  And,  if  unemployment  had  been 
defined  simply  as  lack  of  work — an  event 
not  unpleasant  in  itself,  but  only  in  its  effect 
on  income — a  system  of  insurance  which  in 
part  cancelled  this  effect  would,  very  probably, 
lead  people  to  become  unemployed  on  purpose. 
Since,  however,  we  have  defined  unemploy- 
ment as  the  state  of  being  out  of  work  involun- 
tarily, it  is  impossible,  in  the  nature  of  things, 


214  UNEMPLOYMENT 

for  anybody  to  bring  it  about  on  purpose. 
Consequently,  the  danger  of  the  dehberate 
creation  of  this  insurable  event  is  non-ex- 
istent, and  the  whole  of  our  attention  may  be 
concentrated  upon  the  danger  of  simulation. 
In  the  case  of  such  an  insurable  event  as 
death  or — when  a  proper  system  of  birth 
registration  exists — of  old  age,  simulation  is 
practically  impossible.  When  the  event  is 
unemployment  as  defined  above,  one  con- 
ceivable form  of  simulation  is  almost  equally 
out  of  the  question.  If  a  man  is  really  at 
work,  he  can  scarcely  pretend  not  to  be 
and  escape  detection.  A  simple  rule,  such 
as  that  often  enacted  by  Trade  Unions  and 
adopted  in  the  administration  of  the  British 
Unemployment  Insurance  Law,  of  requiring 
men  in  receipt  of  out-of-work  benefit  to  sign 
the  vacant  book  daily  at  some  time  that  falls 
within  normal  working  hours,  affords  a  com- 
plete safeguard.  The  possibility  of  simulation 
of  this  kind  is,  therefore,  a  matter  of  no 
practical  importance.  Until  recently,  how- 
ever, the  case  was  very  different  w4th  that 
form  of  simulation,  which  consists  in  being 
out  of  work  on  purpose  and  pretending  to  be 
out  of  work  involuntarily.  It  was  easy  to 
abandon  a  job  on  plausible  grounds  and  to 
be  unenthusiastic  in  the  search  for  a  new 
one;  and  it  was  hard  for  anybody  to  prove 


INSURANCE  215 

that  a  man  was  shirking  in  this  way.  This 
circumstance,  more  than  any  other,  has  been 
responsible  for  the  fact  that  practically  all 
the  systems  of  insurance  against  unemploy- 
ment, which  have  had  any  measure  of  success, 
have  been  worked  through  Trade  Unions  of 
workpeople  engaged  in  the  same  industry  and 
working  together  in  groups.  For,  though  to 
guard  against  the  kind  of  simulation  we  have 
been  discussing  is  always  hard,  it  is  probably 
least  hard  when  benefit  is  arranged  in  such  a 
way  as  to  make  a  man's  neighbours  and 
comrades  in  work  interested  inspectors  of 
his  conduct.  Of  late  years  the  development 
of  an  organized  system  of  Labour  Exchanges 
in  the  more  advanced  industrial  countries  is 
beginning  to  change  the  situation.  In  former 
times  the  workman's  task  included,  not  only 
doing  his  work,  but  also  finding  it ;  and,  though 
his  Trade  Union  might,  by  collecting  informa- 
tion, greatly  help  him  in  the  search,  it  made 
no  pretence  of  undertaking  the  search  for 
him.  The  modern  Labour  Exchange,  however, 
when  it  is  developed  so  far  as  to  constitute,  not 
merely  a  bureau  of  information,  but  an  actual 
centre  of  engagement,  will  itself  take  over 
the  task  of  searching  for  work.  The  individual 
workman,  no  longer  having  to  perform  that 
task  at  all,  cannot  be  made  slack  about 
it    by    his    knowledge    that    unemployment 


216  UNEMPLOYMENT 

benefit  exists.  It  will  no  longer  be  possible 
for  anybody  to  pretend  to  be  out  of  work 
involuntarily,  when  he  is  really  out  of  work 
on  purpose.  If  he  is  out  of  work  in  spite  of 
an  offer  of  work  from  the  Labour  Exchange, 
then  he  will  certainly  be  out  of  work  on 
purpose;  if  he  is  out  of  work  because  the 
Labour  Exchange  is  unable  to  make  him  an 
offer,  he  will  as  certainly  be  unemployed  in 
the  strict  sense.  The  importance  of  this  point 
is  recognized  in  the  almost  universal  emphasis, 
which  is  laid  in  continental  schemes  of  subsi- 
dized insurance  against  unemployment,  upon 
the  value  of  associating  these  schemes  with 
some  form  of  Labour  Exchange.  "  In  Cologne 
and  Berne  the  Insurance  Fund  and  the  public 
Labour  Exchange  are  practically  amalgam- 
ated. In  Strassburg,  Milan  and  Antwerp, 
receipt  of  subvention  by  an  unemployed 
person  under  the  '  Ghent  system '  is  con- 
ditional upon  his  registration  at  the  Labour 
Exchange.  .  .  .  The  State  subvention  to  un- 
employed benefit  in  France  can  only  be 
claimed  by  Unions  having  an  organized 
method  of  finding  employment  for  their 
members."  ^  In  like  manner,  the  adminis- 
tration of  Part  II  of  the  National  Insurance 
Act  of  the  United  Kingdom — the  Part,  that 
is,  which  deals  with  unemployment — is  to  be 
conducted  in  connection  with,  and  through 


INSURANCE  217 

the  agency  of,  the  national  system  of  Labour 
Exchanges.  No  doubt,  the  practice  of  en- 
gaging workpeople  at  the  Exchanges  as  yet 
prevails  only  over  a  narrow  field.  The  task 
of  searching  for  work  has  not  been  transferred 
to  these  institutions  in  a  sufficient  measure 
to  destroy,  or  even  as  yet  very  greatly  to 
mitigate,  the  danger  that  insurance  against 
involuntary  failures  to  find  work  may  lead 
to  failures  which  pretend  to  be  involuntary 
but  are  really  deliberate.  Mr.  Beveridge  is 
describing  the  future,  and  not  the  present, 
when  he  writes  :  "  Once  the  community  or 
the  insurance  fund  undertake  the  notification 
of  work,  the  necessity  of  making  relief  allow- 
ances inadequate  or  degrading  in  order  to 
drive  men  on  the  search  for  work  disappears."  ^ 
Furthermore,  even  apart  from  this,  it  must 
be  remembered  that  the  struggle  to  find  work 
may  include  such  things  as  the  learning  of  a 
subsidiary  trade,  as  well  as  mere  search  for 
work  at  a  man's  main  trade,  and  that  Labour 
Exchanges  provide  no  protection  against  a 
slackening  of  effort  in  this  direction.  Never- 
theless, we  may  rightly  hold  that,  with  the 
development  of  these  Exchanges,  the  danger 
that  simulation  of  unemployment  will  be 
brought  about  by  the  institution  of  insurance 
against  that  event,  is  likely  to  be  less  serious 
in  the  future  than  it  has  been  in  the  past. 


218  UNEMPLOYMENT 

The  bearing  of  this  discussion  upon  the 
question  how  far  in  practice  the  idea  of 
mutuaUty  can  help  to  steady  consumption 
at  a  low  cost  is  indicated  by  the  sentence 
just  quoted  from  Mr.  Beveridge's  book. 
When  the  conditions  are  such  that  an  insurable 
event  can  be  simulated  easily,  it  is  necessary 
to  make  the  inducement  to  simulation  small. 
This  implies,  in  the  first  instance,  that  the 
benefit  paid  to  unemployed  persons  must 
amount  to  a  considerably  smaller  sum  than 
the  wage  they  would  have  earned  had 
they  continued  at  work.  Thus,  the  British 
Engineers,  who  are  among  the  aristocracy  of 
labour,  provide,  in  respect  of  a  man  who  has 
belonged  to  the  Union  for  ten  years,  a  benefit 
of  10s.  a  week  for  the  first  14  weeks'  unem- 
ployment ;  7s.  for  the  next  30  weeks,  and 
6s.  for  further  unemployment ;  and  the 
benefit  provided  under  the  compulsory  clauses 
of  the  British  National  Insurance  Act  is  7*. 
a  week,  commencing  after  the  first  week's 
unemployment,  and  extending  for  a  maximum 
period  of  15  weeks  in  any  12  months.  The 
device  of  making  benefits  small,  introduced 
in  order  to  prevent  simulation,  cannot  fail 
also  to  limit  the  efficacy  of  insurance  against 
unemployment  as  a  means  of  steadying  con- 
sumption. For,  although  a  certain  limited 
measure  of  steadiness  can  be  brought  about 


INSURANCE  219 

at  a  smaller  cost  than  would  otherwise  have 
been  necessary,  the  cost  of  evolving  steadiness 
in  excess  of  this  limited  measure  is  not 
affected  at  all.  If  we  are  content  to  prevent 
a  man's  consumption  from  falling  in  times 
of  unemployment  by  more  than,  say,  a  third 
of  its  normal  amount,  the  instrument  of  in- 
surance enables  us  to  do  this  fairly  cheaply. 
But,  if  we  wish  to  prevent  his  consumption 
from  falling  by  more  than,  say,  a  twentieth, 
that  instrument  cannot  at  present  be  em- 
ployed. As  Labour  Exchanges  come  to  play  a 
more  important  part,  it  will,  however,  become 
applicable  to  larger  tasks. 

This  completes  what  it  is  necessary  to  say 
in  connection  with  the  first  of  the  two  infer- 
ences distinguished  at  the  beginning  of  this 
chapter.  It  was  there  laid  down  that  the  evil 
consequences  of  unemployment  are  likely  to 
vary  in  extent  with  the  efficiency  and  economy 
of  the  arrangements  which  are  available  for 
enabling  people  to  make  their  consumption 
steady  in  the  face  of  a  fluctuating  wage 
income.  These  arrangements  have  now  been 
examined.  The  second  inference  was  to  the 
effect  that,  given  these  arrangements,  the  evil 
consequences  are  likely  to  be  less,  the  more 
closely  the  amount  of  resources  actually  de- 
voted by  workpeople  to  the  task  of  promoting 
steadiness  approximates  to  the  amount  that 


220  UNEMPLOYMENT 

a  full  understanding  of  their  true  interests 
would  dictate.  We  now  turn  to  the  practical 
implications  of  this  inference.  If  every- 
body was  perfectly  intelligent  and  self-con- 
trolled, there  would,  indeed,  be  nothing  to 
discuss.  The  workpeople  concerned  would 
understand  their  interests  fully  and  expend 
their  resources  in  the  best  possible  way.  In 
real  life,  however,  perfect  intelligence  and 
self-control  are  in  all  classes  somewhat  lack- 
ing, and  in  the  working  classes  not  less  than 
in  others.  Experience  has  shown  that,  as 
a  matter  of  fact,  there  is  a  tendency  to  let 
the  future  take  care  of  itself,  and  not  to  make 
such  preparations  in  good  times  as  a  dis- 
passionate review  of  the  probabilities  would 
show  to  be  desirable.  This  is  partly  due  to 
the  difficulty  of  grasping  the  reality  of  a 
distant  prospect,  to  which  all  persons,  and 
particularly  those  who  are  imperfectly  edu- 
cated, are  liable,  and  partly  to  that  essential 
vanity  of  human  nature,  through  which  a 
man,  while  fully  recognizing  the  risks  of  a 
given  venture  to  the  average  person,  secretly 
assumes  himself  to  be  somewhat  superior  to 
the  average.  Be  the  causes,  however,  what 
they  may,  of  the  fact  there  is  little  doubt. 
"  During  the  period  of  prosperity,"  writes 
Mr.  Richard  Bell,  drawing  on  a  wide  range  of 
experience,  "  when  a  large  number  of  workers 


INSURANCE  221 

are  earning  good  wages,  it  is  regrettable  to 
think  that  they  do  not  take  care  of  the  few 
extra  shillings  they  then  receive,  but  indulge 
so  freely  in  drinking  and  gambling,  so  that, 
when  they  are  meeting  with  a  little  depression, 
they  are  entirely  at  the  mercy  of  the  employers, 
and  have  to  put  up  with  circumstances  which 
they  otherwise  would  not."  ^  In  view  of  the 
fact  thus  indicated,  there  is  prima  facie 
ground  for  holding  that  the  evil  consequences 
of  unemployment  might  be  reduced  by  legal 
enactments  designed  to  induce  workpeople  to 
invest  a  larger  proportion  of  their  resources 
than  they  naturally  tend  to  do  in  the  work 
of  rendering  their  consumption  more  steady. 
Since,  as  we  have  seen,  insurance  is,  in  general, 
the  most  economical  instrument  to  this  end, 
we  may  leave  on  one  side  the  problem  of 
State  encouragement  to  individual  saving,  and 
consider  onlysuch  encouragement  to  insurance. 
Broadly  speaking,  two  forms  of  encourage- 
ment are  possible — namely,  bounties  and 
compulsion.  Both  of  these  may  appear  in 
various  forms  and  degrees.  Thus,  bounties 
may  merely  consist  in  the  supply,  at  the  cost 
of  the  State,  of  statistical  material  and  tariffs 
of  risks.  Or  they  may  include  the  free  pro- 
vision of  an  institution  through  which  insur- 
ance can  be  effected,  thus  affording  to  insurers 
a  guarantee  against  fraud  or  insolvency.     Or 


222  UNEMPLOYMENT 

again,  they  may  include  a  small  subsidy  in 
money,  such  as  that  accorded  in  England  to 
life-insurance  by  the  rule  exempting  the  pre- 
miums paid  on  such  insurance  from  income 
tax.  Or,  finally,  they  may  include  a  con- 
siderable subsidy,  such  as  is  accorded  to 
Trade  Union  insurance  against  unemploy- 
ment in  those  places  on  the  Continent  of 
Europe  where  the  so-called  "  Ghent  system  " 
has  been  adopted.  These  subsidies  have,  in 
some  cases,  amounted  to  as  much  as  fifty  per 
cent,  of  the  benefits  paid.  In  like  manner, 
encouragement  by  compulsion,  if  such  a 
phrase  is  permissible,  may  assume  various 
forms,  according  as  the  compulsion  is  con- 
ditional or  unconditional,  operated  through 
localities  or  through  trades,  limited  or  un- 
limited in  its  range.  The  most  important 
instance  of  this  method  is  contained  in  that 
portion  of  the  British  National  Insurance  Act 
which  renders  insurance  against  unemployment 
compulsory  upon  all  workpeople  engaged  in 
the  building  and  engineering  trades. 

If  it  be  granted,  on  the  strength  of  what  has 
been  said  in  earlier  paragraphs,  that  some 
form  of  encouragement  to  insurance  against 
unemployment  is  likely  to  diminish  the  evils 
associated  with  unemployment  and  is,  there- 
fore, socially  desirable,  it  becomes  necessary 
to  decide  which  of  the  two  forms  of  encourage- 


I 


INSURANCE  223 

ment  just  distinguished  is  to  be  preferred. 
In  order  that  this  discussion  may  be  conducted 
fairly,  we  must  be  careful  to  set  in  contrast 
with  compulsion,  not  current  examples  of  the 
method  of  bounties,  but  examples  of  a 
superior  kind.  For  current  examples  are, 
all  of  them,  so  arranged  that  the  amount  of 
subsidy  accorded  is  dependent  on  the  ex- 
penditure which  the  subsidized  societies  make 
upon  unemployment  benefit.  Under  the 
Ghent  plan  the  subsidy  is  some  fixed  pro- 
portion of  this  expenditure,  and  under  the 
sections  of  the  British  National  Insurance  Act 
providing  for  State  aid  to  voluntary  insurance 
against  unemployment  it  is  also  a  fixed  pro- 
portion— in  this  case  limited  to  one-sixth. 
Arrangements  of  this  kind  are,  however,  open 
to  two  serious  objections.  The  first  and  most 
obvious  of  them  is  that,  other  things  being 
equal,  larger  benefit  is  likely  to  be  paid  by 
richer  groups  of  working  men,  and  that, 
therefore,  the  system  involves  State  aid  to 
different  groups  varying  more  or  less  inversely 
with  their  need.  This  is  the  exact  contrary 
of  what  is  socially  desirable;  for  clearly,  if 
any  discrimination  is  allowed,  the  State  aid 
should  vary  directly,  and  not  inversely,  with 
need.  The  second  objection  is  that,  other 
things  being  equal,  highly  fluctuating  indus- 
tries are  likely  to  have  a  larger  expenditure 


224  UNEMPLOYMENT 

upon  unemployment  benefit  than  steady- 
industries.  Bounties  proportioned  to  expen- 
diture will,  therefore,  confer  upon  them  a 
differential  advantage  similar  to  that  which 
would  be  conferred  upon  dangerous  industries, 
if  the  State  were  to  contribute  to  all  industries 
in  proportion  to  the  compensation  paid  for 
accidents.  But  such  differential  encourage- 
ment of  particular  industries — unless,  indeed, 
the  particular  industries  are  specially  selected 
for  encouragement  on  the  ground  that  too 
little  of  the  nation's  resources  is  normally 
invested  in  them — is  almost  certain  to  involve 
economic  waste  and,  therewith,  social  injury. 
Consequently,  so  far  as  encouragement  by 
bounties  involves  differentiation  of  this  kind, 
a  strong  ground  for  condemning  it  is  revealed. 
It  is,  however,  possible  to  devise  a  system  of 
bounties  that  is  not  open  to  either  of  the 
above  two  objections.  After  the  pattern  of  the 
State  contribution  towards  sickness  benefit  in 
Germany,  subsidies  to  unemployment  benefit 
might  be  made  proportional  to  the  number 
of  persons  attached  to  any  insurance  fund, 
on  condition  that  a  certain  minimum  benefit 
was  provided  to  men  out  of  employment. 
It  is  this  ideal  form  of  encouragement  by 
bounty,  rather  than  current  forms,  that 
ought  to  be  compared  with  encouragement 
by  compulsion. 


INSURANCE  225 

It  is  easily  seen,  however,  that  even  this 
form  suffers  from  two  serious  disadvantages. 
The  first  of  them  is  that,  in  practice,  bounties 
on  insurance  against  unemployment  can  hardly 
(apart  from  compulsion)  be  given  with  effect 
in  any  industry  except  through  a  Trade 
Union.  In  all  countries,  however,  even  in 
industries  where  Unions  are  strong,  large 
numbers  of  workpeople  are  usually  to  be 
found  outside  the  Unions.  "  Consequently, 
unless  the  bounty  is  to  be  discriminating  in 
its  incidence,  a  rule  must  be  made  compelling 
these  societies  to  allow  outsiders,  who  will 
not  become  regular  members,  nevertheless, 
to  become  members  in  respect  of  the  fund 
subsidized  by  the  State.  A  rule  of  this  sort 
prevails  in  Denmark  and  also  in  Norway, 
but  it  is  obviously  unsatisfactory,  and  likely 
to  lead — as,  indeed,  in  Norway  it  has  led, 
— to  considerable  friction.  A  compulsory 
scheme  is  free  from  this  difficulty."  *  The 
second  disadvantage  of  the  method  of  boun- 
ties is  that,  as  a  means  of  inducing  people 
to  insure,  it  is  immensely  less  effective  than 
compulsion.  Even  the  large  bounties  fre- 
quently offered  under  the  Ghent  system, 
though  they  have  extended  the  range  of 
insurance  operated  by  Unions  already  in 
existence,  have  had  practically  no  effect  in 
building  up   Trade   Union   insurance  among 

H 


226  UNEMPLOYMENT 

classes  of  workpeople  hitherto  innocent  of 
it.  "  The  great  bulk  of  those  claiming  the 
public  subvention  are  drawn  from  highly 
skilled  and  organized  trades — such  as  printing, 
cigar-making,  diamond  working.  The  un- 
skilled and  semi-skilled  occupations — in  which 
the  bulk  of  distress  through  unemployment  is 
found  in  the  United  Kingdom — do  not  appear 
as  yet  to  be  touched  by  the  Ghent  system 
anywhere.  In  Strassburg  the  hope  of  reach- 
ing these  classes  in  this  way  is  expressly 
abandoned  and  annual  relief  works  are  con- 
templated as  the  only  resoiu*ce  for  the  seasonal 
labourers."  ^  In  this  respect  compulsory  in- 
surance is  obviously  a  more  powerful  instru- 
ment. "  It  does  not,  indeed,  implj'-,  as 
popular  opinion  supposes  it  to  do,  universal 
insurance.  For,  since  in  all  systems,  so  far 
as  they  are  concerned  with  unemployment, 
benefits  lapse  after  a  time,  highly  inefficient 
men  must  often  become  uninsured  in  spite 
of  compulsion.  The  English  National  In- 
surance Act,  for  example,  provides  that  no 
workman  shall  receive  unemployment  benefit 
for  a  number  of  weeks  in  excess  of  one-fifth 
of  the  number  during  which  he  has  paid 
contributions.  Still,  it  is  plain  that,  though 
compulsion  does  not  mean  insurance  for  all 
workpeople  covered  by  the  compulsion,  it 
must,  in  general,  approach  much  more  nearly 


INSURANCE  227 

towards  this  goal  than  any  system  of  bounties. 
We  are  not,  indeed,  entitled,  on  the  strength 
of  the  above  considerations,  to  infer,  without 
reserve,  that  compulsion  is,  in  this  matter, 
necessarily  superior  to  bounties.  What  people 
think  good  in  such  a  case  goes  a  long  way 
towards  determining  what  is  good.  And,  in 
a  country  where  the  idea  of  State  compulsion 
was  violently  unpopular,  that  fact  might 
turn  the  scale  in  favour  of  the  less  efficient 
method  of  bounties.  In  fact,  however,  the 
unpopularity  of  compulsion  appears  to  be 
imaginary  rather  than  real,  at  all  events 
among  the  workpeople  of  Western  Europe. 
The  device  of  combining  with  compulsion  a 
certain  element  of  State  aid,  which  has  been 
adopted  in  connection  with  other  forms  of 
insurance  legislation  in  Germany,  France  and 
England,  has  apparently  sufficed  to  make  the 
principle  of  '  compulsion  '  reasonably  palat- 
able." ^  The  British  experiment  of  compul- 
sory insurance  against  unemployment  in  the 
building  and  engineering  trades  may,  there- 
fore, be  watched  in  a  spirit  of  hope.  It  may 
well  be  that  success  there  will  warrant 
an  extension  of  the  same  policy  to  other 
industries. 


228       UNEMPLOYMENT 
CHAPTER  XIV 

THE    RELIEF    OF    THE    UNEMPLOYED 

In  the  preceding  chapter  it  was  tacitly 
assumed  that  the  persons  whose  fortunes 
we  were  discussing  consist  exclusively  of 
those  who,  taking  one  time  with  another, 
earn  enough  to  support  themselves  in  reason- 
ably adequate  conditions.  Such  persons, 
when  unemployed,  may  be  reduced  to  great 
poverty  and  distress,  if  they  have  not  made 
provision  in  good  times  against  the  bad  times 
that  are  to  follow.  By  means  of  insurance 
against  unemployment  they  can,  in  great 
part,  overcome  this  risk  without  the  need  of 
assistance  from  other  people.  Those  of 
them,  who,  for  any  reason,  are  not  insured, 
will,  indeed,  on  occasions,  need  assistance. 
WTien  this  happens,  it  is  obvious  that  the 
giving  of  help  should,  so  far  as  is  practicable, 
be  made  conditional  upon  the  consent  of 
the  assisted  person  to  join  an  insurance 
society,  and  so  to  safeguard  himself  against 
any  second  similar  lapse.  So  much  being 
understood,  we  have  now  to  consider  the  case 
of  an  entirely  different  class  of  persons.  This 
class  consists  of  workpeople,  whose  income  is 


RELIEF   OF   THE   UNEMPLOYED     229 

so  low  and  whose  periods  of  unemployment 
are  so  long,  that  it  is  impossible  for  them  to 
make  provision  unaided  against  bad  times, 
without  reducing  their  consumption  in  good 
times  below  what  the  general  sense  of  the 
community  considers  to  be  a  reasonable 
minimum.  For  these  persons  insurance 
against  unemployment  is  not  a  sufficient 
remedy,  and  it  is  necessary  for  them  to  be 
assisted  frequently  by  their  more  fortunate 
fellow-citizens.  The  essential  element  in  their 
condition  is,  not  that  they  suffer  from  time 
to  time  from  unemployment,  but  that,  over 
the  aggregate  period  of  their  working  lives, 
they  are  unable  to  earn  enough  for  self- 
support.  The  problem  which  they  present 
is  the  same  as  that  presented  by  persons  who 
are  regularly  employed,  but  whose  wages  are 
too  low  for  a  decent  subsistence.  The  fact 
that  their  fortunes  alternate,  so  that  some- 
times they  earn  a  fair  income  and  at  other 
times  earn  nothing,  is  subordinate.  Funda- 
mentally, they  are  poor  persons  rather  than 
irregularly  employed  persons.  This  is  the 
essential  point,  and  it  is  upon  this  basis  that 
the  following  paragraphs  will  be  built  up. 

Before  more  detailed  discussion  is  under- 
taken, it  may  be  laid  down  generally  that 
assistance  to  persons  who  are  poor  on  account 
of  unemployment,  as  to  those  who  are  poor 


230  UNEMPLOYIVIENT 

from  any  other  immediate  cause,  ought  not 
to  be  organized  in  such  a  way  as  to  exercise 
a  demoralizing  influence  on  the  persons 
relieved.  This  rule  leads  immediately  to 
strong  condemnation  of  the  mixed  workhouse 
and  the  mixed  casual  ward,  in  which  workmen 
genuinely  in  search  of  employment  are  liable 
to  be  contaminated  by  contact  with  wast- 
rels and  criminals.  It  leads  also  to  a  like 
condemnation  of  that  system  of  Municipal 
Relief  Works,  which  originated  with  a  Circu- 
lar issued  by  the  Local  Government  Board 
in  1886  and  was  more  elaborately  organized 
under  the  Unemployed  Workmen's  Act  of 
1905.  The  intention  underlying  the  Circular 
and  the  Act  alike  was  to  enable  workmen, 
normally  in  regular  employment  but  thrown 
out  of  work  in  some  period  of  exceptional 
depression,  to  be  assisted  without  incurring 
the  stigm^a  of  pauperism.  Mr.  Gerald  Balfour, 
in  his  evidence  before  the  Royal  Commission 
on  the  Poor  Laws,  said  :  "  The  unemployed 
for  whom  the  Bill  was  intended  were  respect- 
able workmen  settled  in  a  locality,  hitherto 
accustomed  to  regular  work,  but  temporarily 
out  of  employment  through  circumstances 
beyond  their  control,  capable  workmen  with 
hope  of  return  to  regular  work,  after  tiding 
over  a  period  of  temporary  distress."  ^  As 
a  matter  of  fact,  however,  the  Act  contained 


RELIEF   OF   THE   UNEMPLOYED     231 

no  definition  that  could  confine  relief  to  this 
type  of  workmen,  and  the  Distress  Committees 
set  up  by  it  have  provided,  in  the  main,  for 
a  very  different  type.  In  the  words  of  the 
Poor  Law  Commissioners,  the  Act  has  "  re- 
sulted in  the  wholesale  and  periodic  relief 
of  casual  and  chronically  under-employed 
labourers  under  non-deterrent  conditions."  ^ 
Many  of  these  men  are  of  low  character  as 
well  as  of  low  industrial  quality.  Association 
with  them  upon  relief  works  could  hardly  fail 
to  be  injurious  to  any  workmen  of  a  higher 
grade  who  might  find  their  way  to  these 
works.  In  the  absence  of  the  disciplinary 
weapon  of  dismissal,  and  in  view  of  the  fact 
that  the  work  must  necessarily  be  of  a  general 
character,  to  which  many  of  the  men  engaged 
are  not  accustomed,  and  for  which  it  is 
difficult  for  any  one  to  gauge  their  aptitude, 
deliberate  loafing  can  hardly  be  prevented. 
An  atmosphere  of  half-hearted  effort,  trickery 
and  "  ca-canny  "  almost  necessarily  results. 
The  fact  that  the  work  itself  is  often  more  or 
less  obviously  made  for  the  occasion  adds 
to  this  evil  influence  upon  morale.  It  may 
well  be  that  receipt  of  relief  in  return  for 
work  done  under  such  conditions  will  involve 
a  lasting  injury  to  a  man's  industrial  char- 
acter. A  method  of  assistance  that  threatens 
these  results  is  incapable  of  serious  defence. 


232  UNEMPLOYMENT 

With  this  general  prehminary,  we  may 
distinguish  those  poor  persons  who  are  in- 
capable of  independent  self-support  into  two 
broad  groups ;  those  who  cannot,  and  those 
who  can,  be  raised  into  the  self-supporting 
class.  The  former  group  may  conveniently 
be  considered  first.  It  is  the  sad  fact  that 
there  exist  many  inefficient  persons  whom 
no  training  is  likely  to  render,  in  any  appreci- 
able measure,  economically  more  valuable. 
Old  men  and  women  long  past  their  prime 
cannot,  practically  speaking,  be  taught  a 
new  industry.  Many  cripples  and  persons 
suffering  from  certain  results  of  accident  or 
from  chronic  weakness,  whether  mental  or 
physical,  are  in  like  case.  It  is  clearly  useless 
to  attempt  to  develop  new  industrial  powers 
in  such  persons.  Their  capacity,  or  lack  of 
it,  must  be  taken  as  something  given  and 
unalterable,  and  it  must  be  recognized  that 
more  or  less  continuous,  or,  at  all  events, 
recurrent,  help  from  others  is  necessary  for 
them.  Our  problem  is  to  determine  what 
form  this  help,  when  given  by  public  authority 
— and,  for  convenience,  the  discussion  is  con- 
fined to  that  case — can  most  advantageously 
assume. 

The  study  of  this  problem  has  not  infre- 
quently been  impeded  by  a  popular  opinion 
which   is,    in   some   quarters,    strongly   held. 


RELIEF   OF   THE   UNEMPLOYED     233 

It  is  maintained  that  persons  in  receipt  of 
public  assistance — and  the  argument  applies 
equally  whether  that  assistance  is  small  and 
continuous  or,  as  in  the  case  of  persons  who 
need  relief  only  when  out  of  work,  large  and 
occasional — ought  not  to  be  allowed  to  offer 
their  services  to  private  employers  in  com- 
petition %vith  independent  labourers.  The 
reason  given  for  this  contention  is  that  sub- 
sidized workpeople,  being  enabled  by  the 
subsidy  to  undersell  their  rivals,  tend  both 
to  deprive  them  of  employment  and  to  force 
down  the  general  rate  of  wages.  This  argu- 
ment mis-states  the  facts.  Recent  investiga- 
tions tend  to  show  that,  when  two  people 
differ  solely  in  that  one  does,  and  the  other 
does  not,  receive  a  Poor  Law  subsidy,  their 
wages  are  the  same.  Thus,  Mr.  Jones  and  Miss 
Williams,  who  conducted  a  special  inquiry, 
on  behalf  of  the  Royal  Commission  on  the 
Poor  Laws,  into  the  effect  of  out -relief  on 
wages,  write  in  their  report  :  "  We  found  no 
evidence  that  women  wage-earners,  to  whose 
families  out -relief  is  given,  cut  rates.  Such 
wage-earners  are  invariably  found  working 
at  the  same  rates  of  pay  as  the  much  larger 
number  of  women  not  in  receipt  of  relief, 
who  entirely  swamp  them.  .  .  .  We  could 
find  no  evidence  that  the  daughters  of  paupers 
accepted  lower  rates  than  others,  or  earned 

H  2 


234  UNEMPLOYMENT 

less  than  others,  because  of  their  indirect 
relation  to  pauperism."  ^  The  truth  of  the 
matter  is  that,  even  if  independent  workpeople 
had  to  contribute  nothing,  either  directly  or 
indirectly,  to  the  support  of  relieved  persons, 
they  would  gain  very  little  indeed  by  the 
removal  of  the  competition  of  these  persons. 
Since,  in  fact,  they  do  help  in  one  way  or 
another  to  provide  funds  for  the  Poor-rate, 
it  is  probably  to  their  advantage — even  apart 
from  the  fact  that  they  may  themselves 
some  day  become  dependent — as  it  is  certainly 
to  the  advantage  of  the  conununity  as  a 
whole,  that  relieved  persons  should  earn  by 
industry  as  large  a  part  as  may  be  of  the 
money-cost  of  their  maintenance.  Now,  it 
is  well  known  that,  if  persons  are  merely 
given  tasks  by  the  public  authority  assisting 
them,  whether  inside  or  outside  an  institu- 
tion, there  is  practically  no  chance  of  any 
effective  work  being  obtained  from  them. 
Groups  of  inefficient  persons  working  together, 
^^dthout  the  cohesion  that  a  nucleus  of  com- 
petent workers  would  afford,  and  working 
too  under  the  segis  of  a  relieving  authority, 
never  do,  and,  so  far  as  can  be  foreseen,  never 
will,  accomplish  much.  The  same  men,  how- 
ever, scattered  and  employed  as  parts  of  the 
labour  force  of  a  number  of  private  firms 
under  normal  industrial  conditions  may  really, 


RELIEF   OF   THE   UNEMPLOYED     235 

in  their  small  way,  serve  society,  and  earn  a 
reasonable  proportion  of  the  resources  they 
consume.  Nor  is  this  the  whole  of  the  benefit 
that  results  from  their  work.  If  they  are 
forbidden  to  come  forward  in  boom  periods, 
fluctuating  industries  will  need  to  keep  larger 
reserves  of  labour  attached  to  themselves, 
and  ready  to  be  called  out  in  these  periods, 
than  is  necessary  if  a  part  of  the  function  of 
a  reserve  can  be  performed  by  the  State- 
assisted  poor.  A  system,  under  which  these 
persons  are  available  for  the  needs  of  private 
industry  in  periods  of  keen  demand,  serves 
to  lessen  the  fluctuations  in  demand  to  which 
normal  workpeople  are  exposed.  It  follows 
that  the  organization  of  relief  ought  to  be 
such  that  relieved  persons  are  withdrawn 
from  private  industry  to  the  least  possible 
extent,  and  that  they  immediately  return 
there,  whenever  the  conditions  of  demand 
permit. 

At  this  point  a  further  distinction  must  be 
made.  Among  poor  persons  incapable  of 
self-support  and  also  incapable  of  profiting 
appreciably  from  industrial  training,  one  part 
earn,  when  they  are  at  work,  considerably  more 
than  a  reasonable  subsistence,  but  a  second 
part  never  do  this.  The  problem  of  organ- 
izing relief  to  the  former  of  these  groups  is 
closely  related  to  that  of  organizing  ordinary 


236  UNEMPLOYMENT 

insurance  against  unemployment.  As  was 
pointed  out  in  the  last  chapter,  if  the  benefit 
paid  is  fixed  at  a  sum  considerably  below  the 
normal  wage  of  the  workpeople  affected,  it 
will  not  have  any  important  effect,  especially 
when  worked  in  conjunction  with  a  National 
system  of  Labour  Exchanges,  in  causing 
people  to  fall  out  of  work  deliberately.  This 
consideration  suggests  that,  for  that  group 
of  poor  persons  with  whom  we  are  now  con- 
cerned, relief  may  be  organized,  with  great 
advantage,  under  the  guise  of  State  aid  to 
compulsory  insurance.  Relief  so  organized 
has  not  the  pauperizing  tendency  of  direct 
relief,  and  it  has  the  further  advantage  of 
leaving  the  recipients  of  it  in  touch  ^vith 
normal  industry  and  ready  to  step  into  any 
openings  that  may  present  themselves.  The 
main  objection  to  this  policy  is  that  mentioned 
in  the  last  chapter,  namely,  that  it  involves 
the  payment  of  differential  bounties  favouring 
certain  industries  relatively  to  others.  This 
objection  can,  however,  be  got  over,  if  the 
amount  of  the  bounty  is  so  arranged  as  to 
balance  the  net  payments  made  from  the 
insurance  funds  of  different  trades  to  those 
inefficient  members  whom  it  is  decided  to 
assist.  On  this  plan  the  normal  men  in  an 
industry  are,  in  effect,  repaid  by  the  State 
what  they  themselves  pay  to  the  inefficients, 


RELIEF   OF   THE   UNEMPLOYED     237 

and  there  is  no  inducement  either  to  normal 
men  or  to  inefficients  to  attach  themselves 
to  one  sort  of  industry  rather  than  to  another. 
To  achieve  an  arrangement  of  this  kind  it  is 
evident  that  subsidies  proportioned  to  benefit 
will  not  serve,  but  that  a  direct  and  special 
calculation  of  the  appropriate  grant  must  be 
made,  and  must  be  periodically  revised,  in 
respect  of  each  separate  industry. 

This  plan,  though  it  may  work  satisfactorily 
as  regards  inefficient  men  obtaining  inter- 
mittent employment  in  trades  paying  good 
wages,  is  not  applicable  to  those  who,  even 
when  at  work,  earn  a  bare  subsistence.  In 
this  case  it  is  not  practicable  for  the  relief 
that  is  paid  to  them  when  they  are  unem- 
ployed, whether  it  appears  in  the  guise  of 
insurance  benefit  or  in  a  more  direct  form, 
to  be  considerably  below  their  normal  wage. 
This  defence  against  the  danger  that  the 
prospect  of  it  will  cause  men  to  fall  out  of 
work  deliberately  is,  therefore,  not  available. 
We  have,  in  fact,  to  do  with  that  class  of 
persons,  the  treatment  of  whom  constituted 
the  central  problem  set  before  the  Poor  Law 
Commissioners  of  1832.  The  Commissioners' 
solution  was  that  relief  to  such  persons,  if 
able-bodied,  should  be  given  in  conjunction 
with  definitely  deterrent  conditions,  includ- 
ing some  form  of  labour  under  disciplinary 


238  UNEMPLOYMENT 

control.  This  solution,  for  the  limited  class 
of  persons  now  under  discussion — a  class,  be 
it  noted,  which,  since  1832,  has  greatly  di- 
minished in  relative  importance — seems  still 
to  hold  the  field. 

From  these  two  divisions  of  poor  persons 
incapable  of  self-support  and  not  likely  to 
benefit  from  industrial  training,  we  may  pass 
to  the  second  principal  group  distinguished 
on  p.  232,  namely,  those  who,  though  not 
at  the  time  self-supporting,  seem  capable,  at 
a  reasonable  cost  to  the  public  purse,  of  being 
trained  and  educated  into  normal  independent 
citizens.  It  is  plainly  to  the  general  interest 
that  such  persons  should  be  so  trained  and 
educated.  For  a  time,  no  doubt,  the  cost 
would  be  larger  than  that  involved  in  mere 
occasional  relief,  but  it  would  be  a  temporary 
cost,  instead  of  a  lasting  one.  It  could, 
therefore,  often  be  undertaken  with  profit, 
even  if  the  non-economic  advantages  of  an 
independent  life,  as  against  one  sustained  by 
public  or  private  charity,  are  left  out  of  ac- 
count. Practical  recognition  is  given  to  this 
fact  in  the  British  National  Insurance  Act. 
The  hundredth  clause  of  that  Act  provides 
that,  if,  after  test  and  inquiry,  "  the  insurance 
officer  considers  that  the  skill  or  knowledge 
of  a  workman  (who  repeatedly  falls  out  of 
employment)  is  defective,  but  that  there  is 


RELIEF   OF   THE   UNEMPLOYED     239 

a  reasonable  prospect  of  the  defect  being 
remedied  by  technical  instruction,  the  in- 
surance officer  may,  subject  to  any  directions 
given  by  the  Board  of  Trade,  pay  out  of  the 
unemployment  fund  all  or  any  of  the  expenses 
incidental  to  the  provision  of  the  instruction, 
if  he  is  of  opinion  that  the  charge  on  the 
unemployment  fund  in  respect  of  the  work- 
man is  likely  to  be  diminished  by  the  pro- 
vision of  the  instruction."  The  class  of 
persons  to  whom  this  policy  is  especially 
applicable  are  workpeople  not  too  far  advanced 
in  years,  whose  special  skill  has  been  rendered 
useless  by  some  invention  enabling  the  work 
they  have  learnt  to  do  to  be  performed  more 
economically  by  unskilled  labour  in  attend- 
ance upon  an  automatic  tool.  They  include 
too  those  persons  whom  accident  or  illness 
has  deprived  of  some  specialized  capacity, 
as  well  as  those  who  are  the  victims  of  perma- 
nent changes  of  fashion  of  a  kind  that  could 
not  practically  be  foreseen.  To  assist  these 
persons  by  mere  money  contributions  is  to 
abandon  hope  of  any  real  cure  of  their  mis- 
fortunes, and  to  render  them,  in  effect, 
permanent  pensioners  of  the  State.  But, 
in  teaching  them  a  new  trade  in  place  of  the 
one  they  have  lost,  there  is  good  prospect  of 
a  real  remedy,  and  not  a  mere  palliation. 
And  the  case  is  the  same  with  those  persons, 


240  UNEMPLOYMENT 

if  in  practice  they  can  be  distinguished,  who, 
with  an  aptitude  for  one  sort  of  occupation, 
have  accidentally,  or  through  perversity, 
drifted  into  another.  In  this  category,  doubt- 
less, should  be  included  men  bred  in  the 
country  and  well  fitted  for  rural  life,  who 
have  been  enticed  by  the  glamour  of  some 
city  to  abandon  their  proper  vocation.  For 
such  men  a  year's  training  on  a  farm  colony, 
like  that  established  by  the  Salvation  Army 
at  Hadleigh,  may  well  provide  industrial 
regeneration.  It  is,  however,  essential  that 
the  men  selected  for  this  type  of  training 
shall  be  carefully  chosen  from  among  persons 
with  a  real  turn  for  agricultural  life.  Fre- 
quently this  has  not  been  done.  On  the 
continent  of  Europe,  according  to  a  recent 
report  in  the  United  States  Bulletin  of 
Labour :  "  The  Farm  Colonies,  as  distinguished 
from  penal  workhouses,  do  not  in  general 
receive  the  genuine  unemployed,  i.  e.  those 
who  are  out  of  work  against  their  will.  The 
great  majority  of  the  frequenters  are  the 
shiftless  loafers,  who,  in  the  severer  seasons 
of  the  year  or  in  times  of  special  distress, 
seek  the  shelter  they  offer  rather  than  expose 
themselves  to  continued  want  or  run  the  risk 
of  entering  the  penal  workhouse."  *  Such 
men,  no  doubt,  may  benefit  for  a  time  from 
the  healthy  conditions  of  country  life,   but 


CONCLUSION  241 

nobody  would  expect  them  to  be  restored 
thereby  to  capacity  for  independent  self- 
support.  The  comparative  failure  which  has 
attended  recent  experiments  in  farm  colonies 
does  not,  therefore,  afford  a  decisive  argument 
against  further  experiments,  or  justify  any 
condemnation  of  these  institutions  when 
used  as  training-grounds  for  temporary  un- 
employed persons  well  fitted  by  nature  for 
agricultural  occupations.  It  should  be  added 
that  the  provision  of  training  and  education 
in  any  of  the  above  ways  is  not  incompatible 
with  "  deterrence,"  as  required  by  our  first 
rule.  On  the  contrary,  to  a  man  wishing  to 
be  idle,  the  prospect  of  training  is  in  itself 
highly  deterrent.  The  knowledge  that  he 
cannot  obtain  public  relief  except  at  the 
cost  of  being  "  improved  "  may  be  expected 
to  check  shirking  at  least  as  effectively  as 
the  prospect  of  disfranchisement  or  of  being 
called  upon  to  perform  a  small  task  of  work. 


CHAPTER  XV 

CONCLUSION 

It  will  be  recollected  that  the  definition  of 
Unemployment    which    we    decided,    in    the 


242  UNEMPLOYMENT 

second  chapter,  to  adopt,  diverges  slightly 
from  the  current  use  of  terms.  Broadly 
speaking,  and  subject  to  certain  reservations 
and  explanations,  it  is  equivalent  to  what 
would  be  generally  understood  by  "  involun- 
tary idleness,"  thus  taking  account  of  the 
time  lost,  not  only  by  persons  definitely  out 
of  a  job,  but  also  by  persons  working  "  short- 
time."  The  whole  of  the  preceding  discussion 
has  been  conducted  on  the  basis  of  this 
definition.  In  bringing  it  to  a  conclusion  I 
propose  to  summarize,  from  the  standpoint 
of  one  seeking  "  remedies "  for  unemploy- 
ment, the  more  important  of  the  results  that 
have  been  achieved. 

In  the  first  place  after  a  discussion  of  some 
mistaken  popular  views,  it  was  shown  that, 
even  in  a  perfectly  stationary  state,  unemploy- 
ment is  likely  to  be  present,  if  any  workpeople 
have  to  be  paid  a  rate  of  wage  artificially 
raised  above  that  which  the  free  play  of 
economic  forces  tends  to  bring  about.  From 
this  general  proposition  two  inferences  were 
drawn.  The  one  is  that  any  attempt  on  the 
part  of  a  particular  Trade  Union  to  force  up 
the  wages  of  its  members  above  those  current 
in  the  general  run  of  similar  occupations  is  a 
cause  of  unemployment,  and  the  abandon- 
ment of  that  policy  is,  pro  tanto,  a  remedy  for 
it.     The  other  is   that,   when   humanitarian 


CONCLUSION  243 

considerations  lead,  in  effect,  to  the  estab- 
lishment of  a  minimum  wage  below  which  no 
worker  will  be  engaged,  the  existence  of  a 
large  body  of  persons  not  worth  this  minimum 
wage  is  a  cause  of  unemployment;  and 
anything  which  improves  the  quality  of  the 
lowest  grade  of  workers,  such  as  the  dis- 
couragement of  blind  alley  occupations  and 
the  provision  of  increased  facilities  for  edu- 
cation and  training,  is,  pro  tanto,  a  remedy. 
This  latter  point,  in  particular,  is  one  of 
great  importance. 

In  the  second  place,  it  was  shown  that,  when, 
as  is,  of  course,  the  case  in  real  life,  conditions 
are  not  stationary,  the  occurrence  of  unem- 
ployment will  not  be  obviated  merely  by  the 
circumstance  that  the  average  wage-rate  over  a 
long  period  is  nowhere  raised  artificially  above 
the  rate  which  competitive  conditions  tend  to 
bring  about.  On  the  contrary,  some  measure 
of  unemployment  will  necessarily  be  present,  so 
long  as  wage-rates  are  lacking  in  plasticity, 
and  fail  to  move  up  and  down  about  their 
average  in  conformity  with  the  movements 
that  take  place,  from  time  to  time,  in  the 
demand,  now  for  one  kind  of  labour  and  now 
for  another.  It  follows  that  the  volume  of 
unemployment  is  likely  to  be  diminished  by 
any  device  that  renders  wage-rates  less  rigid 
than  the  mutual  suspicions  of  employers  and 


244  UNEMPLOYMENT 

employed  frequently  cause  them  to  be.  The 
establishment  of  Conciliation  Committees, 
particularly  when  they  are  free  to  employ 
the  machinery  of  sliding-scales,  or  some  other 
less  mechanical  device  for  facilitating  the 
rapid  adjustment  of  wage-rates  to  varying 
conditions,  thus  constitutes  a  further  remedy 
for  unemployment. 

In  the  third  place,  it  was  shown  that  the 
average  volume  of  unemployment  in  any 
country  will  be  larger,  the  more  widely  the 
demand  for  labour  in  the  industries  carried 
on  in  that  country  is  liable  to  fluctuate. 
Whatever,  therefore,  tends  to  diminish  in- 
dustrial fluctuations  tends  also,  in  the  end, 
to  lessen  the  volume  of  unemployment. 
Among  the  many  remedies  which  this  con- 
sideration suggests,  attention  was  called  in 
particular  to  the  shortening  of  commercial 
credits,  the  more  wide-spread  adoption  among 
Bankers  of  an  enlightened  policy  in  the 
matter  of  loans,  the  modification  of  the 
currency  system  in  such  a  way  as  to  render 
general  prices  more  stable,  and  the  introduc- 
tion into  fundamental  industries,  where  a 
stoppage  of  work  would  interfere  seriously 
with  the  conduct  of  related  industries,  of 
the  spirit  and  machinery  of  industrial  peace. 

In  the  fourth  place,  it  was  shown  that,  since 
the   downward   fluctuations,  which  occur  in 


CONCLUSION  245 

the  demand  for  labour  in  some  occupations 
and  places,  are  often  partially  offset  by 
upward  fluctuations  occurring  at  the  same 
time  in  other  occupations  and  places,  the 
volume  of  unemployment  is  likely  to  be 
diminished  by  any  device  which  enables 
workpeople  to  ascertain  where  work  is  wanted, 
and  to  move  freely  towards  available  vacan- 
cies. Labour  Exchanges  are  a  device  of  this 
kind.  Their  efficacy  is  especially  great  when 
they  are  organized  as  an  interconnected 
national  system,  and  when  they  act,  not 
merely  as  bureaus  of  information,  but  also 
as  centres  for  the  actual  engagement  of 
hands.  If  the  great  body  of  employers  can 
be  induced  to  make  use  of  them  for  this 
purpose,  they  are  likely  to  develop  into  an 
agency  of  very  considerable  power. 

Finally,  in  the  eleventh  chapter,  it  was 
shown  that  public  authorities  are  in  a 
position  somewhat  to  lessen  the  fluctuations 
that  occur  in  the  demand  for  labour,  and 
hence  to  diminish  unemployment,  both  by 
fitting  that  part  of  their  own  demand  for 
goods  and  services,  which  is  necessarily  occa- 
sional, into  the  interstices  of  the  general 
demand,  and  also  by  avoiding  unnecessary 
ups  and  downs  in  that  part  of  their  demand 
which  is,  or  can  be  made,  continuous.  These 
practices  constitute  remedies  for  unemploy- 


246  UNEMPLOYMENT 

ment  in  all  circumstances.  The  policy,  which 
has  recently  found  advocates,  of  deliberately 
making  public  demands  vary  in  such  wise 
as  to  compensate  variations  in  private  de- 
mands, only  constitutes  such  a  remedy,  pro- 
vided that  certain  conditions  as  regards  the 
mobility  of  labour  are  fulfilled. 

The  various  devices  which  have  been  men- 
tioned under  the  five  preceding  heads  are  all, 
in  greater  or  less  degree,  remedies  for  unem- 
ployment, and  the  adoption  of  any  one  of 
them  would  do  something  towards  diminish- 
ing the  volume  of  unemployment.  At  this 
point,  however,  it  is  necessary  to  add  that  not 
even  the  adoption  of  all  of  them  together 
would  avail  to  abolish  unemployment.  Conse- 
quently, besides  investigating  remedies,  in 
the  sense  of  means  to  limit  the  amount  of 
unemployment,  it  has  also  been  found  neces- 
sary to  investigate  yalliatives,  in  the  sense  of 
means  to  alleviate  the  evil  consequences  to 
which  a  given  amount  of  unemployment  leads. 
Among  these  palliatives  the  most  important 
are  the  device  of  meeting  periods  of  depression 
by  organized  short-time  instead  of  the  dis- 
missal of  hands,  and  the  device  of  insurance 
against  unemployment.  Both  these  devices 
may  prove  highly  beneficial  when  applied  to 
the  case  of  workpeople  who  are  able,  on  the 
average  of  good  and  bad  times  together,  to 


CONCLUSION  247 

earn  a  reasonable  livelihood;  and  both  of 
them  appear  worthy  of  encouragement  by 
the  State.  Obviously,  however,  they  cannot 
of  themselves  solve  the  problem  of  those 
highly  inefficient  workers,  whose  earnings,  on 
the  average  of  a  long  period,  fall  short  of  the 
minimum  requirements  deemed  by  the  general 
sense  of  the  community  to  be  essential. 
Persons  in  this  position  are  unable,  in  any 
event,  to  fend  for  themselves,  and  must,  there- 
fore, be  assisted  in  one  way  or  another — whether 
it  be  by  subsidies  through  insurance  funds,  by 
carefully  controlled  relief  or  by  special  train- 
ing under  disciplinary  conditions — at  the  cost 
of  national  funds.  In  Chapter  XIV  certain 
general  considerations  relevant  to  their  treat- 
ment were  advanced.  The  problem  they 
present  is,  however,  primarily  a  problem  of 
poverty  rather  than  of  unemployment,  and  it 
lies,  in  the  main,  outside  the  scope  of  this 
volume.  Our  task,  therefore,  is  now  completed. 
An  attempt  has  been  made  to  review  in 
the  white  light  of  science  conditions  whose 
continuance  exacts  a  heavy  toll  of  suffering. 
To  denounce  those  conditions  rhetorically — 
even  eloquently — would  have  been  easy.  It 
has  seemed,  however,  more  valuable,  and,  per- 
haps, not  less  humane,  to  forge,  if  that  may 
be,  weapons  wherewith  to  combat  them. 


NOTES 


CHAPTER  II 

1  Cf.  [Cd.  5991],  p.  3. 

2  Cf .  First  Report  on  the  Proceedings  under  the  National 
Insurance  Act,  Part  II.  (Cd.  6965],  passim. 

^  Report  on  the  cost  of  living  in  German  towns 
[Cd.  4032],  p.  523. 

*  Royal  Commission  on  Poor  Laws,  Appendix,  VoL  IX. 
p.  6376. 

5  [Cd.  6965],  p.  24. 

®  Committee  on  Distress  from  Want  of  Employment, 
Third  Report,  Q.  4564. 

'  Cf.  Beveridge,  Unemployment,  p.  21. 


CHAPTER  III 

^  Bulletin  of  the  United  States  Bureau  of  Labour,  No.  79, 
pp.  906-7. 

2  Economic  Journal,  1910,  p.  518. 

^  Leroy-Beaulieu,  La  Repartition  des  Richesses,  p.  612. 


CHAPTER  IV 

^  For  a  detailed  study  of  the  facts  upon  which  the 
statements  in  the  text  are  based,  cf.  Pigou,  Protection 
and  Preferential  Import  Duties,  pp.  48-55. 
248 


NOTES  249 

CHAPTER   V 

'■  Pigou,  Principles  and  Methods  of  Industrial  Peace, 
p.  48. 

2  Pigou,  Wealth  and  Welfare,  pp.  299-301. 

^  Cf.  Raynaud,  Vers  le  salaire  minimum,  p.  335. 

*  Royal  Commission  on  the  Poor  Laws,  Majority 
Report,  p.  150. 

s  Ibid.,  Appendix,  Vol.  XX.  pp.  23-7. 

«  Ibid.,  p.  222. 

'  Report  of  the  Departmental  Committee  on  the  Employ- 
ment of  Children  Act,  1903  [Cd.  5229],  p.  12. 

^  Cf.  Third  Report  of  the  Standing  Committee  on  Boy 
Labour  in  the  Post  Office  [Cd.  6959],  passim. 

^  Royal  Commission  on  the  Poor  Laws,  Majority 
Report,  pp.  224-5. 

^°  Barnett,  Towards  Social  Reform,  p.  99. 

^^  Royal  Commission  on  the  Poor  Laws,  Minority 
Report,  p.  1191. 

^2  Ibid.,  Appendix,  Vol.  XX.  p.  30. 


CHAPTER  VI 

1  [Cd.  4032],  p.  521. 

2  Webb,  Industrial  Democracy,  p.  577. 

3  [Cd.  5366],  p.  xxi. 

*  For  a  detailed  discussion  of  sliding-scales,  cf.  Pigou, 
Principles  and  Methods  of  Industrial  Peace,  Part  II. 
Ch.  III. 

5  [Cd.  6366],  p.  32. 

«  Ibid.,  p.  27. 


CHAPTER   VII 

^  If  the  quantity  of  labour  demanded  at  the  average 
wage-rate  in  one  industry  in  successive  periods  is  (A 
+  aj,  (A  —  02)  .  .  .  (A  +  On),  the  average  being  A; 
in  a  second    industry    (B  -\-  fej),   (B  —  fcg)  •  •  •  (-•^+6™)* 


250  UNEMPLOYMENT 

the  average  being  B;  in  a  third  industry  (C  +  cj, 
(C  —  C2)  .  .  .  (C  +  c„),  the  average  being  C;  the  fluctu- 
ating character  of  the  demand  for  labour  in  the  three 
industries  together  is  measured,  on  the  definition  given 
in  the  text,  by 

ai  +  02  +  .  .  .  a„       6,  +  &2  +  •  •  •  ^n   ,   Ci  +  Co+  ...  c,. 

z, r  z n ;; 


^  Bowley,    National   Progress    in    Wealth   and    Trade, 
pp.  1-2. 


CHAPTER   VIII 

^  Piatt  Andrews,  Quarterly  Journal  of  Economics,  1906, 
p.  351. 

2  Pigou,  Wealth  and  Welfare,  p.  401. 

^  Bagehot,  Lombard  Street,  p.  199. 

'  Irving  Fisher,  The  Purchasing  Power  of  Money, 
p.  342. 


CHAPTER  IX 

1  [Cd.  5366],  p.  137. 

2  Ibid.,  p.  34. 

2  Bulletin  of  the  United  States  Bureau  of  Labour,  No.  60, 
p.  421. 

«  Ibid.,  No.  76,  p.  666. 

5  [Cd.  6603],  p.  17. 

^  Pigou,  Principles  and  Methods  of  Industrial  Peace, 
p.  209. 

CHAPTER  X 

^  Beveridge,  Unemployment,  p.  209. 

2  Royal  Commission  on  the  Poor  Laws,  Minority  Report, 
p.  1125. 

^  Dearie,  Unemployment  in  the  London  Building  Trade, 
p.  133. 


NOTES  251 

*  Royal  Commission  on  the  Poor  Laws,  Minority 
Report,  p.  1125. 

5  [Cd.  2304],  p.  65. 

«  Ibid.,  p.  93. 

'  An  instructive  account  of  the  laws,  which  different 
countries  have  found  it  necessary  to  introduce  in  order 
to  check  the  abuses  arising  in  connection  with  private 
Labour  Exchanges,  is  contained  in  Becker  and  Bernhardt's 
Die  gesetzliche  Regelung  der  Arheitsvermittlung  in  den 
unchtigsten  Landen  der  Erde. 

^  Transvaal  Indigency  Commission,  Report,  p,  135. 

^  Royal  Commission  on  the  Poor  Laws,  Majority 
Report,  p.  403. 

^•^  Beveridge,  Contemporary  Review,  April,  1908,  p.  392. 

^^  Cf .  National  Insurance  Ad,  §  99  ( 1 ). 

^^  Cf.  Schloss,  Economic  Journal,  1907,  p.  78 ;  also 
Bulletin  de  F Association  pour  la  lutte  contre  le  chomage, 
September  1913,  p.  839. 

"  Pigou,  Wealth  and  Welfare,  pp.  112-13. 

^*  De  Rousiers,  La  Question  Ouvriere  en  Angleterre, 
p.  334. 

15  [Cd.  3864],  p.  284. 

i«  Pigou,  Wealth  and  Welfare,  p.  126, 


CHAPTER  XI 

1  Transvaal  Indigency  Commission,  Report,  p.  129. 

^  Royal    Commission    on    the    Poor    Laws,    Minority 
Report,  p.  1099. 

2  Pigou,  Wealth  and  Welfare,  pp.  480-1. 

*  Royal    Commission    on    the    Poor    Laws,    Minority 
Report,  p.  1196. 

*  Ibid.,  p.  1185,  footnote. 


CHAPTER   XII 

^  Cf .  Committee  on  Distress  from  Want  of  Employment, 
1895,  Third  Report,  Q.  4541. 

2  Chapman,  Unemployment  in  Lancashire,  p.  54. 


252  UNEMPLOYMENT 

CHAPTER   XIII 

1  [Cd.  5068],  p.  737. 

^  Beveridge,  Unemployment,  p.  229. 

^  Rowntree,  Betting  and  Gambling,  p.  217. 

*  Pigou,  Wealth  and  Welfare,  p,  418. 

5  [Cd.  5068],  p.  732. 

«  Pigou,  Wealth  and  Welfare,  pp.  418-19. 


CHAPTER  XIV 

^  Royal  Commission  on  the  Poor  Laws,  Majority 
Report,  p.  386. 

2  Ibid.,  p.  394. 

^  Ibid.,  Appendix,  Vol.  XXXVI.  pp.  vi  and  vii. 

*  Bulletin  of  the  United  States  Bureau  of  Labour,  No.  76, 
p.  788. 


BIBLIOGRAPHY 


The  most  elaborate  English  book  devoted  exclusively  to  the 
general  problem  discussed  in  this  volume  is  Mr.  Beveridge's 
Unemployment,  a  Problem  of  Imhistry.  It  is  a  work  deserving 
study  by  all  interested  in  the  subject.  And  the  same  remark 
applies  to  the  long  sections  dealing  with  Unemployment  in  both 
the  Majority  Report  and  the  Minority  Report  of  the  Royal 
Commission  on  the  Poor  Laws  ([Cd.  4499].) 

Information  on  statistical  matters  and  on  the  methods 
adopted  for  dealing  with  the  unemployed  in  a  number  of 
foreign  countries  is  made  available  in  the  memoranda  prepared 
by  the  Board  of  Trade  for  the  Royal  Commission  on  the  Poor 
Laws,  and  printed  in  the  nineteenth  Appendix  volume  to  their 
Report  ([Cd.  5068].)  Further  information  on  these  subjects 
may  be  found  in  Mr.  Schloss'  Report  on  Foreign  Agencies  and 
Methods  for  dealing  vxith  the  Unemployed  ([Cd.  2304],)  in  one 
of  the  Memoranda  printed  in  the  second  Blue-book  on  British 
and  Foreign  Trade  and  Industry  ([Cd.  2337],)  and  in  the  76th 
number  of  the  Bulletin  of  the  United  States  Bureau  of  Labour. 

Continental  experience  in  the  matter  of  insurance  against 
unemployment  is  discussed  in  an  interesting  manner  in  Mr. 
Gibbon's  work  entitled  Unemployment  Insurance.  The  causes 
of  industrial  fluctuations  are  examined  in  Mr.  Burton's  work 
on  Financial  Crisis,  and  the  problem  of  industrial  peace  in  Mr. 
Oilman's  Methods  of  Industrial  Peace  and  my  own  Principles  and 
MetJwds  of  Lidustrial  Peace.  Three  excellent  articles  by 
Professor  H.  S.  Jevons  in  the  Contemporary  Revieiv  of  May, 
July  and  August,  1909,  discuss  the  relation  of  unemployment 
to  Trade  Union  policy  and  the  bearing  of  recent  evidence  upon 
the  late  W.  S.  Jevons'  sun-spot  theory  of  crises.  The  general 
scheme  of  analysis  followed  in  the  present  volume  is  worked 
out  more  fully  in  my  work  on  Wealth  and  Welfare,  where  the 
special  problem  of  unemployment  is  treated  as  a  subordinate 
part  of  a  larger  and  more  general  problem. 
253 


4 


INDEX 


Andrews,  Prof.  Piatt,  114, 115 
ABltwith,  Sir  George,  140 

Bagehot,  119 

Balance  of  Trade,  41 

Balfour,  Gerald,  230 

Banks,  policy  of,  119 

Bamett,  Canon,  73 

Beaulieu,  Prof.  Leroy-,  74 

BeU,  Richard,  220 

Beveridge,  24,  26,  61,  151,  159,  217 

Biinetalli8m,122 

Board  of  Trade  Returns,  20 

BoumvUle,  72 

Bowley,  Prof.  A.  L.,  106 

Brooklands  Agreement,  132 

Buxton,  Sidney,  171 

Cadbury  Bros.,  Ltd.,  72 

Chapman,  118,  180,  200 

Clarke,  V.  S.,  139 

Collective  Agreements,  Report  on, 

87 
CoUective  bargaining,  131 
Compulsory  Arbitration,  54,  141, 

145 
Compulsory  Insurance,  226 
Conciliation,  132 
Conciliation  Act,  136 
Consumption  goods.  111 
Credit,  117 
Cyclical  fluctuations,  112 

Dearie,  153 

Dismissal  of  hands,   19,  192,  197, 

200 
Distress  Committees,  231 
Dock  labourers,  199 

Employment  of  Children  Act,  71 
Expectation  of  Earnings  defined, 
54 


Farm  Colonies,  240 
Fisher,  Prof.  Irving,  125,  126,  127 
Fluctuations  of  incoais,  31 
Fluctuations  of  industry,  93 
Foreign  trade,  40 

Ghent  system,  216,  222 

Hadleigh  Farm  Colony,  240 

Industrial  Disputes  Investigation 

Act  (Canada),  138 
Instrumental  goods,  110 
Insurance  against  Unemployment, 

203 
"  Involuntary  Idleness,"  18 

Jevons,  115,  123 
Jones,  233 

Labour  Exchanges,  152,  155,   157, 

215,  245 
Labour  Gazette,  129,  154 

Mahaim,  168 
Making  for  stock,  100 
Mediation,  135 
Methods  of  engagement,  57 
Minimum  wage,  64 
Mixed  workhouse,  230 
Mobility  of  labour,  77,  146 
Monetary  systems,  120 
Municipal  Relief  Works,  230 

National  Insurance  Act,    19,  158, 

214,  216,  218,  222,  226,  238 
New  Zealand  Arbitration  Law,  62 

Out  relief,  233 
Overtime,  186 

Piece  wages,  61,  197 
Place  mobility,  161 


255 


256 


INDEX 


Plasticity  of  wage  rates,  76 
Poor  Law  Commission  1832,  237 
Poor  Law  Commission  1909,   69 ; 

Majority  Report,  69, 159. 180,  231  ; 

Minority  Report,  74, 183,  187 

Preference  lists,  58 
Prison-made  goods,  36 
Purchasing  power  of  money,   79, 
122 

Relief  of  the  Unemployed,  228 
Relief  works,  230 
Rigidity  of  wage  rates,  93 
Rousiers,  de,  164 

Sadler,  Principal,  73 
Seasonal  fluctuations,  108 
Short  time,  17,  192,  197,  200 
Sliding  scales,  84 
Slow  workers,  62 
Smith,  Adam,  161 
Smith,  Sir  H.  LleweUyn,  25,  34 
State  action,  170 


Stationary  State,  52 
Stieet  selling,  70 
Sunspots,  116 

Tabular  standard  of  value,  123 
Telegraph  boys,  71 
Time  wages,  61,  197 
Transformations  of  industry,  104 
Transvaal  Indigency  Commission, 

158,  171 
Trade  Union  Returns,  21 

Unemployed  Workmen  Act,  230 
Unemployment,  definition  of,  16 
Unemployment,  distribution  of,  191 
Unemployment,  measurement  of, 
18 

Voluntary  Arbitration,  134 

Wages  Boards,  54,  83 
Webb,  Mr.  and  Mrs.,  85 
Williams,  Miss,  233 
Work  fund  fallacy  36,  49 


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